Corn, cotton, soybean and wheat prices are providing opportunities to lock in record or near record profits.
Farming is full of many risks. Most fall into one of two categories: (1) production risk and (2) price risk.
Production risk for corn, soybeans and cotton primarily is influenced by weather and by insects. Much of this is out of your control and yet a fair share of it can be insured.
Managing price risk, which is what we do at Brock Associates, can be much more complex. In extremely volatile times such as we are in now, risk management becomes a very popular phrase and one that many lenders promote.
It is unfortunate that risk management programs in commodity marketing often become popular and are implemented after unforeseen circumstances have already hurt profits — the classic mistake of “bringing the fire extinguisher after the barn has already burned down.”
That is not the case this year. As I write this article, almost all producers are looking at an opportunity to lock in record or near record profits in corn, soybeans, cotton and wheat.
Commodity prices are cyclical. The good thing about farming is that bad times don’t last forever. During periods of high commodity prices we need to remind ourselves that the good ones don’t last forever either! High prices are here to be taken advantage of — not stared at.
With that said, as commodity prices soar and emotions run high, we all have to remind ourselves that we typically have two years of crops to sell, the old crop and the one that we’re going to plant this coming spring.
In the South, the majority of producers rarely store large quantities of grain with the majority of the crop being priced before, during or right after harvest. Consequently, we’re normally looking at the marketing of new crop.
Only with 20/20 hindsight will anyone know exactly where the top of these markets will be. I do know this. History is a strong teacher, though, and history shows that bull markets around harvest time, often top out early.
Typically the peak will occur during or just right after harvest. The news will be the most bullish at tops and one must look more at good profit opportunities than all the bullish enthusiasm you will hear at the coffee shop.
The higher markets go during and after harvest the lower they will be by mid summer.
Scaled up selling is always a good plan in markets such as we are witnessing.
Also, markets go down a lot faster than they go up. Right now, it is difficult to see what will make the markets go down — but if everyone knew now when the markets would go down, then it wouldn’t be much of a surprise when they do.
Be an aggressive marketer in the near term.