November 5, 2006 - An Unusual Fall Harvest Market

I have been covering the grain market at the Chicago Board of Trade for 46 years. I know a lot of people who are traders, who are hedgers, who are speculators, who are end users and who are producers will agree with this statement: “In my nearly ½ century, I have never witnessed a fall harvest market season like we are seeing in the year 2006.”

Remember back in August, that first crop report said we would be harvesting large corn and soy bean crops. Now history says that when we move into harvest and some of the crops start moving into market, you are going to see downward pressure. How many Falls have we talked about “there’s harvest pressure in the market place today”

This year, I don’t think I have used that statement once, because there has been no harvest pressure. Whether it is wheat, corn or soy beans, the market has continued to escalate. Right now, looking at December 2007 corn, you could sell a crop you’ll plant next Spring at $3.50 an acre.

There is no question, that at these price levels, there is profit for producers in wheat, corn and soybeans. But that is also part of the challenge of marketing, because over the years, how many times have I witnessed farmers who, when the market goes up, don’t sell because they know the market is going higher.

There are several rules to remember: “What goes up, will come down.”.
“What comes down, will go up.” Secretary of Agriculture, Earl Butts said it often....... “The cure for high prices is higher prices. The cure for low prices is lower prices.” And we have certainly seen that in the oil industry over the past two or three months. That is why it is critical for producers to have a market plan; to know the cost of production and then to set a target price that will assure them a profit, and then execute the plan.

Because these are emotional markets and what is driving the rally? Many things. First of all, the commodity funds. Yes, when the market goes down, farmers condemn commodity funds. But this rally has been driven by money from outside agriculture in commodity funds.

Then of course there is the energy production coming out of corn and soybeans, ethanol and bio diesel. And looking ahead next year, one economist at Purdue University said “We will have to add ten million acres of corn to the crop next year to fulfill the demands for feed and food and ethanol.”

So there are many factors involved in the rally. But I cannot remember a Fall harvest market season that has seen this kind of a rally, because it dumbfounds just about everybody, including those on the trading floor. So if you are a producer, take advantage of these prices and don’t let them get away from you.

My thoughts on Samuelson Sez.