Market News & Headlines >> Brock Consultant Katie Hancock's Blog: Three Marketing Tips
Insights from Brock Associates Consultant Katie Hancock
Sometimes it takes a three-day weekend to shake things up. Corn and soybean futures led strong from technical buying, Argentina flooding, and a weak dollar. I have three main thoughts moving forward to help with pricing decisions for old and new crop.
1) Have a price outlook. Whether you’re bullish or bearish, have a realistic price in mind. A price outlook isn’t just in the next two weeks. Look out as far as 6 and 12 months. Without an outlook, you’re shooting in the dark. Richard Brock stirred listeners a couple weeks ago on Market Rally Radio. While he did not predict $6 soybeans futures in 2017, he did suggest soybeans are overpriced for the upcoming crop.
Soybean prices could start with a 7 if planting intentions are as aggressive as expected, and a weak basis could translate into soybeans starting with a 6 (in some locations). This is simply what history and the current fundamentals suggest. He has been more optimistic short-term, but if you’re not pricing aggressively this time of year, you have to look at the risks further out.
2) Reduce the noise by looking at the facts. Consider the current soybean carryover, corn-to-soybean ratio trends, and prospective 2017 plantings. We have double the soybean carryover, a top in the corn-to-soybean ratio trend, and expect 4 million more soybean acres in 2017 vs 2016. The recent USDA report reduced soybean carryover by 60 million bushels, but there are still 223 million bushels more than last year. That’s more than double last year’s carryout!
The 60MB reduction is something short term traders will grab onto, but it’s important to focus on the long term carryout. Sure, corn could rise to balance the ratio, but corn appears to be more fairly priced than soybeans- the recent USDA balance sheet suggests $3.10-3.70. There’s no guarantee soybean acres will increase as expected, but cash flow and current profitability encourage soybean planting over corn.
Rumors may turn into fact, but more often create unnecessary confusion and indecision. Argentina’s flooding is supportive today, but is it that bad? Maybe it is, but I’ve seen hundreds of acres flood without a significant impact to production. Markets tend to overreact. If you’re not sure if what you’re hearing is news or noise, grab a USDA balance sheet and see what the impact is on final stocks-to-use ratio.
3) Take opportunities. There are different ways to take advantage of price rallies to lock in some of your production. Richard Brock talks about three marketing questions you must ask: “What to do, how much to do, and how to do it.” All three questions must be answered. For example, if you are bearish beans, sell some. Also you must consider tools and volume. If you can’t confidently decide, then use the help of professionals that have your best interest in mind. Myself, and my colleagues at Brock, consult both strict cash marketers and those that also use futures and options. Feel free to contact us.
Technical buying in soybeans should hold short term, but keep the long-term perspective in mind. The fundamentals are more negative than positive. The recent USDA supply and demand balance sheet suggests a $9-10 range. If you believe soybean acres will increase in 2017, this is too high. If your price outlook and break-even support current prices, don’t be afraid to lock in a portion of your expected production.
There’s no way to know exactly how prices will move. There are too many moving parts. At the same time, it’s essential to have a realistic idea of what a product is worth, and more importantly what it will/could be worth when deciding if and when to price your products. An outlook isn’t only a short-term perspective. I encourage everyone to create different scenarios while focusing on probabilities versus possibilities. A price outlook and action strategy are essential to great risk-management.