The answer to the question is “yes” on emotions and “no” on prices. Here's what I mean.
A couple of years ago, a reporter asked me what has changed in the markets over the last 20 years. My response was, “The fundamentals have changed and the price levels have changed. But one thing has not and never will change: the human nature side of markets. People will still get too bullish at tops and too bearish at bottoms — that's guaranteed.”
As we now watch the bull market of 2002 unfold and possibly conclude, it's a grim reminder of the emotions of 1996 — even though the price levels were higher then.
What Did Work
Since 1996, many producers have learned what works in marketing is to be an aggressive forward contractor long before harvest. Then, wait for the market to collapse and collect a hefty loan deficiency payment (LDP).
What was learned is what has worked in the last several years — but not necessarily in the year ahead.
Unfortunately, too many producers have learned this “trick” too late and implemented this strategy aggressively this past winter and spring. Now those forward contracts are “underwater” and no LDP's are available. What will the outcome be?
As in 1996, people have learned this year “what didn't work this year.” Also, like in 1996, I feel strongly that people are going to learn that this “is the year” to be forward contracting for next year.
Emotional Markets Are Tough
Think about it this way. Say you have a friend or neighbor in either the far eastern or far western Corn Belt that was hit hard by this year's drought. He forward contracted 100 bu of corn per acre last February at $2.10/bu and now the market is at $2.45 and his yields are coming in at 80 bu/acre. This is not a happy man.
More importantly, is it possible for this individual to think about forward contracting or hedging next year's corn which, as I write this article, has December futures at $2.65 and new-crop soybeans at over $5/bu off the combine? Think back six months ago when 95% of the farmers in the Corn Belt would have given their right arm for those prices. Now, the majority are afraid to sell at those same prices.
I'm not stating that $2.50 corn off the combine next fall, or $5 soybeans for that matter, will be the best prices you'll possibly get. I will say that one year from now, those prices are going to look incredibly high.
The same strategies that lost money this past year are the ones that will most likely make a lot of money this coming year. But emotionally, it's clearly difficult to pull the trigger with the mental state of many of today's producers.
What's ironic, however, is that a year from now most people will look back at this time frame and at the prices and wonder why something wasn't done. They won't remember the emotional state that most producers are in today.
With 20/20 hindsight, most people only look at prices and fail to remember the emotional environment of the time when those prices were being made. That's the difference between second-guessing and reality marketing.
Planted corn acreage is going to increase significantly in 2003 and thus $2.50 corn off the combine is going to look darn good. Put past marketing mistakes behind and think forward. “He who worries about the past will never be successful in the future.”
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.