Forget marketing strategies that have worked the last five years. We're entering a new era with new rules.
Remember the days … five years ago corn was $5.50 and soybeans $7.50. The bear move in corn and soybean prices that started then and has continued through July of this year has seemed to be an endless journey. Or more appropriately termed, a nightmare for many producers. However, there does appear to be a light at the end of the tunnel, and it's not the rescue squad. Although much of the news still appears to be negative, this is a five-year bear market that has now completed its usefulness.
Corn Acres Down/Soybeans Up
The chart below shows the story — wheat acres have been declining since 1996, and corn acres are the lowest since 1995. Soybean acres just keep marching higher. More specifically, here are some of the key fundamentals affecting grain prices over the next couple of months:
The June USDA acreage report for corn indicated planted acres at 76.1 million acres — the lowest since 1995. In 13 of the last 20 years, the final planted acreage has been lower than the June estimate.
Domestic carryover supplies at the end of this year will be the largest since 1992, currently estimated at 2.048 billion bushels.
On the bullish side, however, world carryover supplies are expected to be 143.1 million metric tons (mmt), which is down sharply from this year's 157.95 mmt and a year ago at 174.15.
Soybean acres are pegged at 75.4 million acres, an all-time record high. However, 15 of the last 20 years, final planted acres have been less than the June report.
Exports are extremely strong. Even in light of record South American crops, U.S. soybean exports will reach an all-time record high this year of nearly 1 billion bushels. Crush will also reach an all-time record high at approximately 1.65 billion bushels.
New Farm Bill?
It's only a question of time. Freedom to Farm is dead. Legally, the current Farm Bill could be extended for one more year, but my guess is that the crop growing in the field now will be the last one we will market under this program. Why? We need to get into compliance with the World Trade agreement, and expenditures under the current Farm Bill will not allow us to do so. If we're going to get a new Farm Bill, however, government officials need to get moving fast.
Many of the farmers who have been fighting this bear market for the last five years are starting to give up. It's unfortunate, because we're looking at signs of a market about ready to turn. The negative fundamentals were built into this market before the Fourth of July weekend. Surprises over the next several weeks, we think, will be on the bullish side.
With a new Farm Bill on the horizon, we'll soon have to forget the majority of the rules we learned about marketing that worked over the last five years. We will now be entering another new era of marketing, with new rules and new fundamentals. But one thing will never change — human nature. Remember to do the opposite of the majority.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.