Managing Expectations

The current market rally that started last fall has certainly provided a much needed boost to the ag economy.  However like most rallies it has also been a roller coast ride of emotions.  Many farmers, despite selling grain for prices higher than expected, have been filled with sellers remorse as they saw prices continue higher after they sold.  Those who still have grain to sell wonder if they waited too long each time the market drops.  Even market analysts, who admittedly didn’t even see this rally coming, struggle to forecast what will happen next.  As farmers ponder their next selling decision(as well as planting decisions) several factors seem to indicate these strong prices will last awhile.  A delayed soybean harvest in South America has kept the U.S. sales window open longer than usual.  China’s buying spree, although expected to slow as South America completes its harvest, has been fueled by need more than a trade deal.  Most importantly of course is the significantly lower stocks level for both corn and soybeans.  This is where the crystal ball gets hazy.  Markets, especially during rallies, are often more about perceptions and assumptions than facts. The recent WASDE report was a good example. Although the report showed lower stocks for both corn and beans, usually considered bullish news, the market viewed it as a somewhat bearish report because those stocks numbers were not as low as many had expected.  Managing expectations can be very challenging.  After years of price depressing stock levels we just saw prices go down after seeing stock numbers reach very tight levels.  Welcome to the world of speculators!  They can help drive prices higher but can also be very fickle.  As we have seen in the past, higher prices are not the cure for all problems.  Livestock producers face much higher feed costs and grain producers are already seeing higher input costs.  Now farmers face tough decisions about what to plant this spring.  Do they stick with their rotations or try to guess which crop will be more profitable?  Will growers who might switch some acres to corn and soybeans, decide not to because of higher prices for sorghum, cotton and wheat?  Will spring weather allow more prevent plant acres to be planted this year?  How will South America’s safrinha crop do this year? How much new crop should they sell now? Not to mention any political decisions that could change everything. Yes this market rally has helped raise a lot of spirits but is hasn’t eliminated all the anxiety.  That never goes away. It’s often said that you have to be an optimist to be a farmer but given all they have to deal with it’s no wonder they often sound so pessimistic.