Large Grain Crops Driving Short Term Markets, Stewart-Peterson Exec Tells Farm BroadcastersWed, 13 Nov 2013 17:27:52 CST
The National Association of Farm Broadcasters is meeting in Kansas City, Missouri, this week. In addition to attracting broadcasters from all over the nation, the meeting brings representatives from agriculture companies and groups as well.
Radio Oklahoma Network's Ron Hays is in Kansas City and spoke with Bryan Doherty. Doherty is a senior market adviser for Stewart-Peterson, a nationwide consulting firm dealing with marketing services and commodities. He said that in the short term, producers are dealing with large grain crops. The projected corn carryout is near the 2 billion bushel mark and Doherty said that will have a tremendous impact on the markets worldwide.
"To give you a relative compass to work with, that's more than double a year ago. Consequently, prices are about half of what they were a year ago and the market is viewing the current supply as very adequate. That can change, but now it's adequate. The consequence of adequate supply is more likely sideways or lower trade activity as fall wears on into early winter. And maybe some price recovery into winter, but chances of a significant rally are going to have to come on some type of supply issue, Southern Hemisphere weather or planting conditions are awry in our home base here in the U.S."
Doherty says such a quick reversal in corn supplies over a one-year period is not unusual. It all boils down to the addition of planted acres and higher yields. It is also affected by the demand side which fell when corn was near the $7 per bushel mark. Another large factor in the quick turnaround of ending stocks is the incredible ability of technology in the form of better seeds, better equipment, and better chemical inputs to increase yields.
Added corn acres in other countries, most notably in Brazil, also added to supplies, further pressuring prices lower. Doherty says that should not have come as a surprise with prices near $7 a bushel for corn.
"Money talks. And when there's profits, it's human nature to push the throttle forward and continue to do what you're doing that's making money until proven otherwise. When there's an economic incentive, it talks."
With corn prices near $4 instead of $7, beef, pork, and poultry producers are a little happier, but there is still talk that prices wouldn't be so high without the demand for grain from ethanol producers due to the Renewable Fuels Standard.
"The fact of the matter is we're producing more corn than ever before and prices are lower and costs of production for producers are higher. So, we are in a new era of corn production and corn usage. Everything from our perspective revolves around some sort of pivot point; usually it's the cost of production.
"Now, I've always said the market doesn't care, necessarily, about your costs of production, but it will care about, as a whole, the costs to produce a crop. And when there are profits above that, you're going to increase supply. When prices move below that level, eventually you're going to use more supply and, consequently, probably not produce as much.
"The feed users have gotten a real break this year. They had some weather events for the corn crop that could have been dramatic and the market seemed to dodge those bullets. And that's healthy in the long run for corn producers because we need to give the livestock producers a year where they can buy at a lower level. Look at the livestock markets-cattle, hogs-up considerably since mid-summer. Corn prices are down considerably since mid-summer. So, it's a good break for the livestock producers and, in the long run, it's healthy for the corn production side of it as well."
Doherty said there is still more demand for soybeans worldwide than available supplies. That's why prices are in the $13 per bushel range. Demand from China continues to increase to levels that were not predicted. The world markets are scrambling for beans and that keeps prices high.
Even so, the future isn't all rosy for producers Doherty said. There are a lot of threats on the economic horizon that could impact producers' profitability and they need to be aware of not only the external factors, but internal factors as well, Doherty said.
"They can pay attention to a lot of things, but first I think they need to look inward at themselves. Corn producers this year who didn't sell ahead, who didn't take any defensive posture, are really starting to feel the effects of the reality of $4 corn and especially if they came up a little short in production because not everybody came up better than expected in yields this year.
"So, consequently, look inward and ask, 'What can I do whether it's six months in advance, a year in advance, what can I do as a professional in an industry to beef up my tools to make me a better marketer?' That's why we believe what separates good farmers from great farmers is the marketing side of it."
Doherty said producers need to learn about the marketing tools available to them as if they were no different than any other tool. If that is not possible, he said, producers might consider hiring someone to do it for them. There's no guarantee of results, he said, but like a well-coached football team prepared to do all the right things, eventually you're going to win.
As far as the long-term economic picture for agriculture producers, Doherty said there are a number of uncertainties that are troubling.
"Here's the downside right now: With so much uncertainty with the Affordable Care Act, with the budget, it's one thing after another in Washington. Agriculture is not going to get a sympathetic ear and has not for the last year. It's just one of those scenarios where everybody sees $8 corn, but they don't recognize that not everybody sells $8 corn. Livestock producers have a real opportunity here to lock in $4 corn. But the point I'm trying to make here is simply that Washington doesn't have, I don't think, the urgency, the leverage, the need to put agriculture front and center. There's too many other big problems. And, like most things in government, it's not preplanning, it's not taking a step forward, it's reacting to events after they occur so two or three years of grain producers losing money will grab somebody's attention. But, for right now, it's unfortunate that agriculture's on the back burner and when you start talking about budgets, the first area you're going to look is not one that's not urgent. And, unfortunately, that's agriculture."
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