This isn't your grandfather's commodity market, where bears and bulls play tug-o-war with a sturdy rope of supply and demand, and future price direction can be graphed with some degree of confidence.
Not anymore, says Richard Brock, one of the nation's foremost analysts for grains. These days, “farmers along with everybody else right now have never been more confused and scared economically.”
Brock will discuss how several outside factors are influencing commodities at an Ag Update session of the Mid-South Farm and Gin Show, at 8:30 Saturday morning, Feb. 28.
During a recent interview, Brock noted, “The world economy and index funds continue to influence commodities, and it's caused the disconnect in commodity prices. I'll try and tie that all together.”
Brock points out that the most important thing is how these new dynamics “are going to change our decision-making process. What should a farmer be doing differently now? Old rules of thumb, etc., just don't apply anymore.”
One solution is for farmers to become more involved in using futures and options. “In January, basis levels were so wide, it made no sense to do a cash contract. Farmers have to be willing to use futures and options on at least part of their production. It's their only choice during those times.”
On what to expect from the markets this spring, Brock noted that soybeans have captured the attention of U.S. growers because of their favorable price and relatively low input costs. With that, Brock doesn't expect the soybean market to have to rally to capture acres. “I think soybeans are done. At these prices, we're going to see a lot more soybean acres.”
A battle could be shaping up between corn and cotton, something Brock hopes to have a handle on by the time of the Gin Show. “I think cotton prices are moving up. We still need some acres and the market has become way too discounted. I'm more positive cotton than I am anything else. Corn is getting killed by demand. Exports are off 40 percent. But even with the weak demand, we need corn acres.”
The month leading up to the Gin Show will be an important one for producers, Brock said. “This will be the first time in history where February will be the most important month of the year. Because of the financial crisis, there are a lot of lenders who are going to wait on their decisions to finance farmers depending on what can be locked in on revenue insurance policies. Those prices are determined on monthly averages in February. So it's a huge month.”
One positive for 2009 could be that fertility and fuel costs are going down. “It's not going to be a disastrous year like some anticipate. But as a result of what's going on, we're going to see a lot more consolidation in the grain industry and the lending industry.”
Brock holds 40 to 50 seminars annually for soybean, cotton, corn and wheat farmers. Over the last few years, he has seen a large surge in Mid-South farmers interested in grain marketing advice. Why? “First of all, many farmers are raising corn when they haven't traditionally raised corn. Secondly, many of them are cotton producers who traditionally have someone else do the marketing.”
Brock regularly writes a column for Delta Farm Press, and also writes a newsletter on the markets. His firm's services range from advising farmers to managing a grower's entire marketing program.