Typically, there are opportunities to lock in profitable prices for commodities each year.
But the market will invariably take those prices away, and the weather will always present challenges to production.
Why does agriculture need a safety net? No matter how high the cost of fuel, seed and fertilizer, the market has to rise to a level at which producers can take profits. If corn seed suddenly rose to $1,500 a bag, there would have to be a corresponding response in the market to encourage planting of corn, which the farmer should gladly lock in.
A sound principle indeed, but as boxer Mike Tyson once said, “Everybody has a plan, until they get punched in the face.”
Leave it to the precocious pugilist to so succinctly and powerfully deliver the counter.
In farming, the punch is risk, those right crosses of dry weather that trap you in a corner, or that tooth-rattling uppercut from a tropical storm that sweeps in from nowhere and sends your cotton crop to La La Land. Or a roundhouse right from something other than weather that you really and truly never saw coming. No other industry but agriculture faces the prospect of devastating loss each and every season.
The market, meanwhile is more of a gut puncher, but it can just as easily put you down for the count. It has no regard for the spirit of Christmas or your combine note.
Furthermore, what the market gives, it invariably will take away. Looking at corn and soybean price forecasts over the next few years, and the possibility of reduced supports, farmers might need to hunker down for a few rounds.
“In 2015 and 2016, market changes for corn and soybeans will not be positive (from a price standpoint),” said Jim Wiesemeyer, senior vice president, Informa Economics, speaking at the recent USA Rice Outlook Conference in St. Louis, Mo.
“Sooner or later, the Fed is going to increase interest rates, I guarantee you by 2016. If Congress doesn’t get its act together, they’ll go higher and faster than most people would have thought.
“The higher U.S. dollar eventually will eventually temper exports, and the corn ethanol blend wall is at a plateau.”
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And what if environmental factors come together for a bumper corn and soybean crop in the Midwest? “Can you imagine what corn and soybean yields would be like without some of these harsh summers?” Wiesemeyer said. “I think we’ve been lulled to sleep on the productive capacity of corn. Watch it. The corn carryover is going to build to 2.5 billion bushels. That’s not a bull market.”
Hopefully, Congress is fully aware of these uncertain horizons as they work on a new farm bill in the weeks ahead. As for the coming decade? Get ready, we could be in for a 15-rounder.