There is an old joke that economists use statistics like a drunk uses a lamppost — more for support than illumination. But there is more truth than humor in this statement. Have you ever listened to two economists give predictions, both using the same statistics, and come out with totally different forecasts?
The table below also indicates a strange story from which readers will draw different conclusions. As I write this in mid-December, grain prices show little change from a year ago. Corn is up approximately 2%, soybeans are up approximately 7% and wheat is up about 2% in value. It's been a good year for hog producers, but prices are unchanged from where they were a year ago. The beef industry has continued strong with little fluctuation this year.
But look at energy prices. I need not tell any reader that fuel prices have gone through the roof, along with input prices. You might conclude from this that it hasn't been a good year to be a farmer. That may be true for some, but for others it has been a tremendous year.
My guess is that 10-20% (and hopefully more) of corn and soybean producers in the U.S. had one of the best financial years in their lives. Even though corn is under $2, there was an opportunity to forward cash contract this crop back in July for $2.30-2.50, depending on where you live. Add a 45¢ LDP onto that price and a producer who timed everything well is going to end up with corn prices averaging close to $3/bu. Some of the same producers had average yields of more than 200 bu./acre. Add in direct payments and counter-cyclical payments and you have gross incomes pushing $600/acre.
Compare that to the producer who sold nothing and even carried over part of the 2004 corn crop. The difference in gross income between these two farmers will be about $250/acre.
This year is a good example of how information is both good and bad. With information widely available, two producers farming side by side should essentially have access to the same information, and yet their marketing results turned out entirely different.
What's important is knowing what to do with the information and how to make a decision. If one of your neighbors did a poor job of marketing this year, what he most likely needs to address is the method by which he makes decisions.
Another aspect of the decision-making process that I've witnessed over the years is that farmers know what to do — they just have difficulty pulling the trigger. Everyone is so afraid to sell corn — worried it might go higher and their neighbor may have an opportunity to sell at the higher price when they will not — that they do nothing at all. That way we can all hit the bottom together.
I think subscribers to The Brock Report had one of the best years in many if they followed our recommendations. For the entire corn crop, with LDPs, the average selling price will be somewhere between $2.80 and $3/bu., depending on where they farm. Relative to what the market had to offer and where the market is today, I'm happy with the results.
New Year, New Game
If you or your neighbor didn't have such a good year, learn from it. An old trader once told me if you make a mistake in marketing, forget it quickly. If you make a really good trade or marketing decision, forget it even quicker. The moral is that what went wrong or right last year is only important to last year. The same marketing strategies rarely work two years in a row.
Basis levels have improved dramatically since harvest and thus a large portion of storage returns are over. There will be some good marketing opportunities in new-crop corn and beans over the next few months, but if you still have all of your old-crop left, few producers will be able to concentrate on making new-crop decisions.
Take advantage of basis gains and get the old crop marketed so that you can think ahead — not back. Good luck in marketing in the coming year.
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 .
|Dec. 13, 2005||Dec. 13, 2004||Percentage|
|Corn (central Illinois)||$1.89||$1.86||Up 1.6%|
|Soybeans (central Illinois)||$5.84||$5.43||Up 7.5%|
|Wheat (Kansas City)||$4.35||$4.25||Up 2.3%|
|Hogs (Sioux Falls)||$46||$46||Unchanged|
|Steers (Texas/Oklahoma)||$90||$84||Up 7.1%|
|Crude Oil (Brent)||$58||$37||Up 56.7%|
|Diesel Fuel (New York)||$1.80||$1.30||Up 38.5 %|
|Propane (Texas)||$1.14||$ .75||Up 52%|