Three considerations in a rising price environment
Spring 2019 is going to remembered as an historic year for rainfall as well as late planting and will surely set a record for the most stuck planter tractors and sprayers.
In fact, the National Agricultural Statistics Service reported only 58% of the U.S. corn crop has been planted. This compares to 90% at this same time in 2018 and a five-year average of 90%. Other wet years that resulted in late planting (2013, 1995, 1993 and 1984) also resulted in eventual national yields well below expectations.
As expected, the grain markets have rallied and prices have improved dramatically. Is this a “black swan” type of event that could move markets considerably higher even from where we are today? Maybe. Is this your typical once-a-year, decent chance at pricing some grain? Maybe. I don’t have a crystal ball to tell you if it is time to sell, but I would like to share three ways of thinking about prices and marketing when markets rise.
Focus on the Fundamentals
Benjamin Graham was famously credited with saying, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” Graham was referring to the equity markets, but the same principle applies to the commodity markets.
Currently, the bulls have taken control and prices are spiking. This is terrific to see, and I am thrilled with the price recovery. However, as you think about marketing decisions, be sure to remember the fundamental balance sheet picture. Today, the bulls are in control and bidding up the price for your grain. Their sentiment might prove to be correct. It may also prove to be a divergence from fundamentals (too high or too low). Stay focused on the fundamental supply-and-demand picture and you will make better marketing decisions.
The financial aspects of your farm are unique. The equity position on the balance sheet, the required debt payments each year, the variable cost structure and many other items differ greatly from one operation to another. It’s important to know your costs, know your needed cash flow and then think for yourself about marketing grain. What your neighbor does or what a faraway friend says to do on Twitter should be of no consideration.
Warren Buffet once said, “You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” Do what is right for you and your farm. If the prices available work well for you (and relieve some stress), pull the trigger on at least some portion of production. And then don’t look back. If you are effective at marketing grain, you will leave some money on the table — which is okay, everybody does.
It’s wise to employ the advice of expert counsel. Brokers, commodity market experts and others stand ready to assist. Once you have done adequate research and have come to rational conclusions — trust yourself. You’ve made it this far by making a series of wise decisions, which have compounded into your success thus far. Likely, some of that success has come from pulling the trigger when the market presented favorable prices. Keep having trust in your decisions and this is likely to continue. Rudyard Kipling said it this way:
If you can keep your head when all about you are losing theirs …
If you can wait and not be tired by waiting …
If you can think – and not make thoughts your aim …
If you can trust yourself when all men doubt you …
Yours is the Earth and everything that’s in it. ❖
— Albin is a senior credit officer in UMB Bank’s Agribusiness Division and has more than 10 years of experience in agriculture financing. He has a master’s degree in business administration from Fort Hays State University. Reach him at Lance.Albin@umb.com.
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The House passed S.4054, the Grain Standards Reauthorization Act of 2020, by voice vote.