16 August, 2008- Expectations and Final Results

The best part of this job is traveling the country to agricultural events and visiting with you on the other side of this column.

A few days ago I made my annual trip to the Illinois State Fair in Springfield and had the opportunity to visit with quite a few producers. It was a good day to be there; it was the day of the August Crop Report. Over the years I have learned that while the numbers in those monthly crop reports change, the reactions don’t.

At the Fair, I talked to farmers who said “Yeah, the crop has really come on and I think those numbers are right on.” Then I hear from others who say “No way will the crop be that big. Too many late-planted fields in my area and what if we get an early frost?” I always have to remind producers that you can’t judge the total national crop based on what you see in your neighborhood. Secondly, the numbers in the monthly reports take into account weather and growing conditions at the 1st of the month and assume normal growing weather from that point forward.

I also heard this comment that came as no surprise after a market sell-off; a corn farmer who said “Samuelson, what did you do to the corn price at The Chicago Board of Trade, for heaven’s sake, it dropped like a rock, without any reason.” I looked at him and said “I’ll bet you didn’t sell any at $7 a bushel “. With a sheepish grin he said, “No, I thought the price would go higher.” That is not a marketing plan, that is Las Vegas gambling and once again, let me remind you ...prices never go the same way forever, there is always a correction.

In the grain trade, we always get private estimates on the numbers ahead of the report and we know who makes those estimates, or “guesstimates” as I like to call them. But I want to turn to Wall Street for a moment and share something that really bothers me there. On my daily radio shows in Chicago, I report agricultural markets, as well as Wall Street. I am really concerned by the unidentified analysts who set ‘expectations’ of what earnings reports should be, and if the report shows a profit, but doesn’t meet the ‘expectation’, the stock price plummets.

Case in point; a few days ago John Deere issued it’s quarterly earnings report. That report showed net profit increased 7% over the same quarter a year ago, a pretty good number of $1.32 a share. But those unknown analysts expected $1.36 a share, 4 cents more, and when they didn’t get it, they drove the price of Deere stock down 12% that day. I don’t own any Deere stock, but to me that reaction to a profitable earnings report makes no sense. I still don’t know who these unknowns are, but I wish I could find them and sell their stock down 100% and put them out of business.

My thoughts on Samuelson Sez.