|
|
|
|
|
|
|
|
|
|
3/3/2010As I was watching the medal ceremony after the Olympic women’s hockey game between Canada and the U.S.A, my daughter looked over at me and made this observation. “Dad, it seems like the ones that win the gold medal are really happy, while the ones that win the silver medal are mad because they lost. Then the ones that win the bronze medal are just really glad they even won a medal.” She went on to say, “it seems strange that the winners of the bronze medals are happier than the winners of the silver medal.”
As I pondered this insight during the following days, I had to wonder if that was just a little bit of the psychology that we feel when we look at our grain marketing. If we sell at the top of the market, we feel like we won the gold medal. If we don’t sell at the top and prices continue to go up and we leave money on the table, we are mad because we only won the silver medal and didn’t win the gold. While in reality to even win the bronze medal is a greater accomplishment than the vast majority of the participants in the markets. How is it that we can be so upset with success?
If we are going to take a margin management approach to grain marketing, we will very likely not win the gold medal, because we do not know where the top of the market will be. Yet if we capture profit margins which add equity to the balance sheet, we are winning the silver or bronze medals and we are winners. If we are winners in the marketing game, we will have the opportunity to play again next year. Olympic athletes train and practice all year round to participate in the games every four years. We play to be in the farming game every year and production and marketing are the gatekeepers.
What type of training are we going to do to get ready for the games this next year? I have found that grain marketing takes a disciplined approach very similar to athletics. Sometimes we have the discipline to act as our own trainer or coach and sometimes we need to hire a trainer to work with us. Another factor that leads to success is regular practice and workouts. It takes a while to get into shape to win the long races.
Workouts may consist of dedicating a specific time of day to become a student of our business. We may study our cost of production and enterprise analysis. We may complete a home study course on marketing tools or strategies. We may collect basis bid from potential markets and plot them on a chart for historical reference. Work outs will go to the next level when we work on putting all of the plays together and develop a game plan. Then comes game day when we must enter the field and put all of this hard work on the line. In the end, we must ski the good race, block the slap shot and keep our focus as we go off the ski jump. Training, dedication, discipline and a sound game plan will be the key to our grain marketing. As any Olympian will tell you, they are always looking for an angle to give them a competitive edge…even with world class training! With extreme volatility in all aspects of agriculture, margin management will be imperative for successful businesses in this next decade. In discussing margin management, Tom Neher, vice president of agribusiness at AgStar Financial Services, had one of those “gotcha” moments in a recent seminar where we shared the podium for an agricultural producer seminar... Read more from the Corn & Soybean Digest. 2/24/2010by Charles R. Hurburgh, Department of Agricultural and Biosystems Engineering
Towards the end of February we typically begin to experience warmer weather and with that arises concerns related to the 2009 corn that came from the fields with low quality and high moisture. Some of the important properties of this corn that are at the basis of this concern are: It was wet - over 20 percent moisture, some much greater... Read more from the Iowa State University Extension - Integrated Crop Management News. 2/15/2010
Grain marketing has never been easy. The old adage that “if I knew where the markets were going to go, I wouldn’t be here,” plays out this time of the year. With the last vestiges of winter challenging our resolve to embrace the cold, we know that a warm sunny beach sounds pretty nice. Wishful thinking can haunt us in the grain markets as well. With the steady decline that we have seen in the price of grain, we are tempted to fall in the trap of thinking, “woulda…coulda…shoulda.” “I would have sold more grain at the higher prices…but. I could have sold more grain at the higher prices…but. I should have sold more grain at the higher prices (I will if they will only get back there again, I promise).” Trying to outguess the markets is a dangerous proposition. Research shows us that over 90% of those that open brokerage accounts close them after experiencing net losses. If trading were so easy, these odds wouldn’t be so daunting.
Rather than beat ourselves up over marketing decisions that we have made in the past, we must analyze our position in the markets and plan for future opportunities. Knowing were our cost of production is the first step in margin management. Margin can either be in the form of profits or loses. Profits add to our equity position and losses drain equity from our net worth. Obviously we are more satisfied with profit margins. The markets present opportunities to capture margins and it is our marketing decisions that determine which side of the ledger we will reside. If we have not made marketing decisions before the price decline of the last six weeks we may find ourselves in the throes of the old cycle of “Greed, Hope and Fear.”
I will never forget the time an old, grizzled trader pulled me aside one day after the markets had closed at the Kansas City Board of Trade. He stood there wearing a sweat soaked trading jacket, hair thinning from pulling it and a gravelly voice from yelling. He looked me in the eye and said, “Son what were you doing in there?” I paused and mumbled that it wasn’t one of my better days. He said, “You know about greed and fear in the markets…which one will cost you the most money?” He didn’t wait for me to answer and blurted out, “Greed has cost me more money than fear ever has…don’t ever forget that young man!” Smarting from his comments, I knew that I had been given a gift.
As we now find ourselves in the “hope” part of the cycle, it is all the more important that we ready ourselves for any type of pre-planting rally that may occur. Many times the markets will give us a second and even a third chance to capture profits. The key to putting them on the bottom line is to know where we are from a margin position. We have to be ready to reward the market by selling when it offers us the profits that make our financial plans work. That is a grain angle that keeps us in business and makes that day on a sunny beach in February all the more possible! 2/1/2010The long protracted harvest that we had this past year has given us much to think about in terms of grain storage. For many people the grain drying systems were the limiting factor in harvest progress. Additional acres may have been added to the operation or new bins built without adding to the drying capacity. This became a risk management challenge in several ways. The first, in the ability to get the crop harvested and out of the field. The risk of leaving the crop in the field and taking the chance of losing yield to lodging or ear drop were in the for front of our concerns. The second risk was in the ability to get the grain dry enough to store and still maintain grain quality. This clearly stressed our profitability with more fuel used than in recent memory.
Now that we have the grain in the bin and we still feel tired and weary from the long harvest it is tempting to think our risks are well managed. Now we must remain vigilant on monitoring the grain quality in the bin. One of the best practices is to “pull the centers” out of the bin. This is done by removing the first load from the center of the bin. When filling the bin the “fines” or foreign matter tend to settle in the center column of the bin. This area tends to attract moisture and restricts air movement. If a bin of grain is to go out of condition, many times this is where the spoilage will start. So by removing this portion of grain, one can allow for greater air movement and remove much of the risk of a “hot spot” developing that can cause more grain damage.
Taking probed samples to monitor grain temperature and moister levels can help one manage the risk of extensive grain damage. If one finds a bin that is starting to lose quality, it is imperative that the grain be removed or turned if the grain is to remain in storage. This may involve moving the grain to another bin to mix and aerate the grain or running it back through the drier another time. None of this is simple or easy, yet if grain is spoiled or has a sour odor it will be severely discounted in price when one tries to sell it on the market.
The task of storing grain and maintaining quality is just one more example of how risk management is more than just buying crop insurance or marketing grain. It is a task that must be part of the management of the grain production operation 365 days a year, not just a few days early in the season.
I was visiting with my friend the other night on the telephone and he was telling be about his marketing plans and how the bids for July delivery were much stronger than the spot bids. He mentioned that it didn’t cost him anything to store the grain in his bins and that waiting to make sales in July would yield huge dividends. I paused and tried to remain calm, before I went into my speech about the cost of storage and that “carries” in the market cannot be captured until the grain is sold. When I was finished, I realized that my friend was silent on the other end of the line. After what seemed like a long time, he said “That was just more than I wanted to hear tonight, sounds like another one of your grain angles!” 1/18/2010
The folk wisdom in the grain trade that, “big crops get bigger and small crops get smaller” was spelled out in the January 12th USDA report. The report said the fall corn harvest was a record 13.151 billion bushels, and the soybean crop was a record 3.361 billion bushels. The previous records were set in 2007 and 2006, respectively. Corn yields were 165.2 bushels per acre, versus expectations for 162.5 bushels, and soybean yields were 44.0 bushels per acre, versus 43.4 bushels estimated by the trade. The USDA raised its Brazilian soybean production estimate by 2 million metric tons to a record 65 million tons. Argentina's crop was left unchanged at 53 million tons. The USDA stated that they would resurvey the size of the corn and soybean crops in several key Midwestern states due to unharvested crops still in the field and may release revisions in the March 10 report. Until that time, these current estimates are the numbers that trade participants will use in analyzing supply and demand.
Markets tend to make big moves when the news from these reports is a surprise to the trade. One must assume that the estimates going into the report has already been factored into the price. Clearly the trade was surprised by this report and markets function is to factor the new information into the price. The collective opinion of the markets was that increased crop size was worth a decline if $.50 in corn and $.90 in soybeans from our recent higher prices. One must remember that value is a perception of worth.
The market’s reaction to the report clearly was a demonstration of the volatility that remains to be managed. This volatility gives the livestock, dairy and ethanol sectors the opportunity to fill some needs at considerably lower prices. This may be a short term break in price that could prove supportive of grain producers in the long term. The lower prices help maintain demand and could create longer term support for grain prices. Grain producers need the end users to find some profitability in order to keep a healthy balance in the agricultural economy.
This resent volatility brings the grain producer the reminder that margin management is critical to maintaining equity on the balance sheet. As one factors the lower grain prices into the return on investment of land and inputs they can discover the power that this volatility brings to the bottom line. Clearly it is difficult to foresee the future prices in the markets. This demonstrates the grain angle that comes from making marketing moves as a financial plan rather than a trading guess.
The coming year will give the grain producer the opportunity to manage their margins in a manner that will have a direct impact on the equity balance in the family farming operations. Margin management is paramount because the investments are greater, the stakes are higher, the volatile markets and the margin of error are smaller than ever. 1/4/2010As we begin the New Year it is time to look forward to the next decade. Looking back can be helpful in understanding were we have come from and to gain perspective, but making plans for the future helps to guide us to our destination. During this time of year-end book keeping and planning for the coming year, is a great time to look forward and make plans for success. Setting goals and implementing plans after enterprise analysis can help us make sound management decisions.
Many times grain producers will ask me where I think the markets will trade. It is tempting to tell them what I think will happen, but I usually take pause and remember that I really do not know where the markets will trade. I have spent the last 25 years studying the markets with the tools of fundamental (supply and demand) and technical (market behavior) analysis to try and predict marketing opportunities. I do think there is some value in this study, but over the years I have learned that it is much like meteorology. I try to make long term forecast just as the weatherman does and find that I am right some of the time and wrong some of the time. This has led me to the realization that making marketing decisions based on these forecasts is risky at best. Risk is what needs to be managed in order to be able to take advantage of the opportunities that the markets present. Making marketing decisions as a financial decision rather than a trading decision helps to manage this risk more successfully than any trading system that I have ever found to date.
As I study the market I believe that there will be a great deal of opportunity to develop our production agricultural enterprises into dynamic operations. There will be a great deal of volatility in the prices of inputs and outputs. This volatility is what will bring us the opportunity. Many times when we think of volatility, this causes us to experience the stress of the unknown. To be successful in the next decade we will need to become more comfortable with these unknown aspects of our business environment. It will be the management skills that we bring to our farms that will be the edge that separates success from failure.
I will never forget the lesson that my Dad taught me when I can home from college. We were sitting around the kitchen table in the farm house and I was espousing all that I had learned at school and identifying all the shortcomings of my professors and administrators. My Dad let me go on for some time without saying a word. I finally wore myself out with the demonstration of my new found knowledge. He looked me right in the eye, paused for a moment and then said, “When you are a sophomore you are about as smart as you will ever be in your life.” I looked at him puzzled and asked him what he meant. After what seemed like an eternity, he said, “Any man can tell you what the problem is, but it takes a real man to figure out how to fix the problem.” I was speechless for the rest of the evening.
As hard as it is to find the solutions to the challenges that we will face during this next decade, they will be the “grain angles” that will determine the outcome of our family businesses. Farm families that can work together to find these solutions will have a very bright and promising future. As rural communities, we will need to capture these solutions to take us into the next decade. 12/21/2009As the snow falls and we wrap up another year, I realize that this is the last column that I will write of this decade. It doesn’t seem like it was that long ago when we were debating the fear of “Y2K” and wondering if our society would grind to a halt as the computers lock up. Clearly this turned out to be an unfounded fear and not a beat was missed as we entered into the decade of 2000. The drive to replace our old computers drove the technology market into frenzy and we thought all business was going to be done over the internet. The technology bubble burst leaving investors in “dot.com” businesses (that never generated a profit) holding worthless stock. This frenzied pattern of investing was repeated several times during the next ten years. We saw this happen in real estate, equity markets and credit default swaps, just to name a few examples. The psychology of the masses seems to push markets to extremes and leave many “holding the bag.”
We in the grain industry certainly saw our share of extremes in psychology, which led to volatility that tested our management. Looking at the extremes of the corn market over the last decade, we saw the “spot month” low made in August of 2000 at $1.74 per bushel. This was followed by the high in June of 2008 $7.62 ½ on the July contract. The soybean market found a low on the “spot month” during January of 2002 at $4.15 ½. The decade high in the delivery market was found in July of 2008 at $16.60. We would have to call these markets frenzied with a $5.87 ½ swing in the corn market and $12.44 ½ swing in the soybean market over the decade. How many people were left “holding the bag” in these markets? Markets like these have very real consequences to all that are involved. This is why margin management is so important for those that want to look back on the next decade.
As I travel the back roads of Minnesota farm country, I am continually impressed with the spirit of rural communities and the folks that bring life to rural America. This is life for sustenance and life for longevity. The land and people that tend to the land have a relationship that is tested most every year. It is out of this give and take that the world is fed, fiber is produced and energy is derived. It is truly, a miracle of creation. Take a moment during this holiday season to give thanks for the opportunity to be a steward of the land. Let us remember those that have gone before us and the ones that bring meaning to our lives. Many times it is too easy to focus on the struggle that we forget to enjoy the journey.
The next decade will give us many chances to work on the grain angles. A wise man said, “Remember to manage the things that you can manage and manage around the things that you cannot.” If only it were so easy! 12/7/2009
Having better harvest weather the last 30 day was an absolute blessing. We now have the winter weather that we could have experienced in November. The fact that markets made a counter seasonal rally was a tremendous gift to grain producers. Market volatility continues and the opportunities and pitfalls remain for us to manage. We have reached a time in production agriculture that we must work towards risk management solutions 365 days a year.
Why is it important to think about risk management 365 days a year? The investments are greater and the stakes are higher. A volatile market, combined with a global economic downturn, has created a greater need for long-term risk management planning. The margin for error is smaller than ever. Producers need to think about a crop insurance and marketing plan that takes into account the intricate and interrelated dynamics of agriculture – and more specifically their operation. It is time to challenge the conventional thinking. Look how technology has changed the how producers apply their inputs, market their crops, and manage their livestock. Now it’s time to reconsider how and when producers plan their entire year.
As we finish our harvesting and clean up equipment, we must not let up and fall back on our laurels. It is time to finish up our years’ records and recap our financial progress. Complete candor, with ourselves and business partners, is vital for us to make unbiased plans for the coming year. We must evaluate where our strengths and weakness lie and plan to address them as we move forward into the New Year. We will make great progress if we can focus on our strengths and seek support for the areas that we are weakest. This type of honesty is hard at times, but the humility that it brings is valuable in moving towards fulfilling our hopes, dreams and goals.
Around our house the preparations for the holiday season are in full gear. I have been told that I can be rather a “grump” when it comes to this type of activity. I admit it, I do like the Thanksgiving season more than the commercial crush of the Christmas holidays. I fear that we can get caught up in the need to stretch our household budgets beyond reason and the stress this causes hinders our ability to remember what is most important in our lives. I know that I am rather “old school” when it comes to these types of things in my life. I remember sitting around the kitchen table in the farm house with Grandpa making peanut brittle on cold winter nights before Christmas. We would sit there with bowls of unshelled peanuts making a mess and he would be stirring up the brittle on the stove. He would tell me about what it was like when he first started farming with mules in the hills of Missouri. As the brittle was spread and cooled with a light sprinkle of salt, I could taste the simple pleasures of being home for Christmas. Take a moment this year to remember “the reason for the season.” 11/24/2009
We saw the risk premium come out of the grain prices as harvest weather improved. Then the U.S. dollar made new lows and crude oil began to rally. The weakness in the dollar keeps our grain competitively priced on the world market. The weak dollar also encourages crude oil prices to rise. Crude oil is priced on the world market in U.S. dollars. With the dollar weak, it takes more dollars to make the price equal with other currencies. This inflationary response encourages investors to buy other commodities, such as gold, crude oil and grain as a hedge against inflation. This relationship is what is giving the grain markets a counter seasonal rally. In other words, “the market goes where the money flows.”
We have seen a nice rally in the stock market. The Dow Jones Industrial Average has rallied 45% from the March lows. Capital is coming back into the markets. Many think that the economy has bottomed out and brighter days are on the horizon. Yet, with this “boom” there are many that are experiencing “gloom.” U.S. unemployment is estimated to be at 10.2%, the highest level since the early 1980’s. Foreclosures are still mounting up and many commercial properties are sitting ideal. Our service based economy relies heavily on consumer consumption to fuel a solid economic recovery. The financial pain that many have experienced, was fueled by low interest rates that encouraged an over issuance of credit. This encouraged over consumption and leveraging the consumer balance sheet. If the consumer facing tight credit is focused on paying down debt and building savings, the over consumption that a recovery needs may be slow to come. Will this rally or “echo bubble” return our economy to health? How long will this counter seasonal rally in the grain markets last if this bubble were to burst?
In talking to farmers and others in the grain industry I have learned a great deal from all of the collective wisdom that I have encountered. One thing that I have learned after 30 years in the grain markets is that I do not know where they will go. If I did know where the markets were going to go, I would not be writing this column, I would be trading from a cabin in the north woods! The grain angle that keeps remerging to me is that grain producers can thrive if they effectively manage their margins. Making marketing decisions by the “numbers,” rather than trying to figure out where the markets will go, allows one to rest assured that hard earned equity can be captured.
The grain markets have given us a gift. Many are now in a position to lock in some profits for the 2010 crop. In order to lock in these profits, one must lock in costs of land and other inputs, along with selling the grain. Using risk management tools such as revenue based crop insurance allows this to work much more effectively.
I called my friend the other night and I could hear the sound of his combine running in the background. I asked him how harvest was going and he replied that it was going better than the last time that I called him in October. He told me that the grain was finally drying down to a more manageable level and bushels were light. I could tell that he was smiling, so I asked him about the yield. He told me that he was running out of bin space and was trying to arrange for some temporary storage. We then talked about the markets and I mentioned the possibility of locking in some profits for 2010. Now, I could tell that he was not smiling anymore. He was quiet for awhile and the he asked me, “What will I do if I sell now and the price goes to $6.00?” I was quiet for a moment and then I asked him, “what will hurt you more, to sell $4.00 corn and it goes to $6.00 or if you sell $2.00 corn?” My friend let out a loud sigh and told me that was an angle that scared him.
The markets are giving us a gift. We can harvest it just like the bushels that fill the bin. That is a Grain Angle that can grow year after year! | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XsnLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | FileType | xsn | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.2 | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.3 | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.4 | 255 | | View in Web Browser | /_layouts/images/ichtmxls.gif | /grain/articles/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&DefaultItemOpen=1 | 0x0 | 0x1 | FileType | xlsx | 255 | | View in Web Browser | /_layouts/images/ichtmxls.gif | /grain/articles/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&DefaultItemOpen=1 | 0x0 | 0x1 | FileType | xlsb | 255 | | Snapshot in Excel | /_layouts/images/ewr134.gif | /grain/articles/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&Snapshot=1 | 0x0 | 0x1 | FileType | xlsx | 256 | | Snapshot in Excel | /_layouts/images/ewr134.gif | /grain/articles/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&Snapshot=1 | 0x0 | 0x1 | FileType | xlsb | 256 |
|
|
|
DTN Grain Experts
March 10, 2010
|
|
|
|
|
|
DTN Grain Experts
March 10, 2010
|
|
|
FARM MARKET NEWS - CORN REPORT FOR Wed, March 10
B
|
|
|
DTN Grain Experts
March 10, 2010
|
|
|
FARM MARKET NEWS - SOYBEAN AND WHEAT REPORT FOR We
|
|
|
|
|
|
|
|
|
|
|
|
|
|