By Frank J. Buchman
“Commodity price fluctuations offer selling opportunities for profit, and can at the opposite end of the spectrum cost producers the farm, so to speak, if not prepared.”
“Nobody knows
exactly what markets are going to do. Few people are more closely involved with commodity price projections and what affects changes than I am, but I don’t know for certain what’s going to happen anymore than anyone else,” emphatically stated Tom Leffler in his opening remarks during the recent Farm Profit Conference at Rossville.
However, the commodity broker and ag marketing risk management advisor from Augusta questioned nearly 200 farmers in attendance at the session coordinated and hosted by 580 WIBW: “Where ever these commodity prices are going, are you ready?”
In a power-point backed discussion, Leffler, representing his Leffler Commodities and Leffler Ag Consulting service businesses, evaluated: “The Markets: Which Way Will They Go?”
A daily market commentator on 580 WIBW primetime agriculture programs, Leffler, with a colored art piece, asked the crowd, “Are you painting a bullish picture, while actually looking at a bearish market?”
“Is ‘coulda,’ ‘woulda,’ ‘shoulda,” following seasonal highs, lows, dips and advances, with greed, fear, and hope, your way of marketing?” he queried the listeners.
“Really how important is marketing to you? Is it shooting for the highs, or selling at a profit? Do you have a marketing advisor, or do you think of that as an unnecessary expense?” Leffler continued inquisition of the group.
Then he pointed out that producers have the odds of 300 to one of picking the top of the market. “Being unhedged with some inputs bought is like the few seconds with a baby who has nothing on when changing a diaper: unprotected and risky,” Leffler showed a picture slide.
Diversification when investing $100,000 was shown to yield 34 percent more return in ten years, compared to investing the entire amount at 7 percent interest.
While many parts of the country including a large part of Kansas have had severe drought over the past several years, Kansas has had some relief, but it is still dry, according to the U.S. Drought Monitor of February 3, 2015.
With the exception of the northeast corner of the state, most of Kansas is “abnormally dry,” while the southwest border counties, southwest corner counties and south central Kansas counties are still in “moderate to severe drought.”
“Forecasts are for the drought to ‘persist or intensify’ in those drought regions of the state through the first quarter of the year,” Leffler pointed out.
All grain prices, hog prices and heating oil prices are down from a year ago, while cattle prices are higher than a year ago.
March Kansas City wheat was $5.61 a bushel, last Tuesday, compared to $6.63 a year earlier, and a record high cash market of $13.95 in February, 2008.
Corn on the March futures was $3.88 a bushel, last week, compared to $4.43 a year ago, and the record high cash, $8.49 in August, 2012.
Soybeans were $2.69 a bushel on the March futures last week, compared to $13.26, a year earlier, and the record $17.95 cash market in September, 2012.
April lean hogs averaged $66.57 per hundredweight last week, down sharply from $95.75 a year ago, and the high cash price of $133.80, last summer, July 2014.
July heating oil was $1.83 last week, down from $2.94 a year earlier, and the high of $4.31, in July 2008.
April live cattle were $153.77 per hundredweight last week, up from $140.17 a year earlier, but down from the cash high of $172.75, just three months ago, November, 2014.
March feeder cattle were $202.02 per hundredweight, last week, up from $167.90, a year ago, but well below the cash market of $245.75 just four months earlier, October, 2014.
The monthly U.S. dollar index is a weighted geometric mean measuring value of the United States dollar relative to other select currencies.
Affected by the U.S. economy, interest rates, the Euro currency of 19 member states of the European union, Greece, China, the Ukraine and the Middle East, according to Leffler, the monthly U.S. dollar index was 120 in 2001, dropped to about 73 in 2007, and is now 94.
The nations planted corn acres peaked at about 97 million acres in 2012, had dropped to 90.6 million last year, and is predicted at 89 million acres this year. Corn production last year was a record 14.2 billion bushels.
Thus, corn stocks at 1.827 billion bushels in this country are about the fourth highest on record, compared to about 2.10 billion bushels in 1992, and 2004, and just under 2 billion bushels in 2005. World corn stocks at 189 million metric tons (MMT), are still below peaks of nearly 200 MMT in the mid’80s, and about the same as the late ’90s.
U.S. soybean acres were an all-time high 83.7 million acres last year, and are expected to set another record at 86 million acres this year. Thus, barring unforeseeable weather situations, soybean production is forecast to surpass the record national production of 3.969 billion bushels last year.
Yearend national soybean stocks at 385 million bushels are the third highest on record, compared to nearly 400 million bushels in 2005, and about 575 million bushels in 2006.World soybean stocks at 89.26 MMT are an all-time high.
“Soybean production in Brazil, Argentina are expected to be at record levels, too,” Leffler pointed out.
Showing a yellowed Kansas City Star newspaper clipping from 1953, with the headline, “Prime Steers Hit $24,” Leffler emphatically stated, “Today, cattle prices are up 667 percent from1953.”
“Welcome to cattle futures, where the numbers don’t matter, and the market doesn’t care,” he evaluated recent prices.
“The USDA cattle report shows bigger inventories than traders expected. The numbers in every category are above year earlier inventories,” Leffler said.
Cattle profitability for cow-calf, stocker, feedlot and packers were all time high in 2014, compared to several years when feedlot operators and packers had losses.
Again emphasizing, he or nobody knows exactly what markets are going to do, the crop planting, production and stocks would indicate no increase in grain markets. Likewise, increased cattle inventories point to reduced prices at some point in the future.
“Would you like to keep your operation profitable as the commodity markets fluctuate?” Leffler asked.
He advised: “Know your cost of production, understand the use of futures and options, be able to comprehend your local current and historical basis, and then write, post and execute your marketing plan.”
However, Leffler admitted, “Futures trading involves risk of loss, and is not suitable for everyone.”
To be a disciplined marketer, and to use risk management most effectively, Leffler emphasized, “Do not dwell on past mistakes or decisions, but have a plan for ‘what if’ we are wrong. You must accept that markets are highly unpredictable.”
In summary, the commodity advisor demanded: “Marketing should be based upon a plan, not emotions.
“If you cannot handle your commodity marketing, then hire an advisor. It’ll be a return on your investment, and never an expense.
“You are here, and you have no one to blame but yourself. Today is a good day to have a great day,” Leffler concluded.
