Mid Week Comments
Put Up or Shut Up - 02/18/20
Its late February, the time when crops are being harvested in northern
Brazil and getting ready to be harvested in southern Brazil. Argentina's
harvest follows quickly. So called 'experts' are forecasting another
record SAM crop - but if you look at rainfall patterns in Brazil the past
60 days - the odds of a record crop are quickly diminishing.
This is also the time when US farmers make final decisions on crops to
plant in 2020. So far, this has been the winter of discontent for many
farmers - as very few crops project a profit in agriculture when once
again we make decisions on what to plant. Last year, prevent plant was
the most profitable crop!
It has been a difficult past 6 years as prices have stalled out at or
near the bottom of the long term price range the entire time. There has
been very little opportunity to sell at a profit the past 6 years - in
fact breakeven was even an elusive target much of the time. To be
successful, you had to be extremely effective in your sales - selling
essentially the entire crop whenever prices broke above breakeven. Some
years it didn't even happen. Other years, it appeared for only a very
brief time (like less than one month). But that was your opportunity,
and you had to take it when it presented itself.
But nothing lasts forever, and it now may be time to switch gears. In
marketing, typically what worked last year doesn't this year, and that
old strategy to sell at break-even has worked to well in the past, the
entire world of market advisors wants to use it again. But the "times
they are a changin'" as Bob Dylan once wrote. We are seeing signs that
the 6 year old pattern of low prices is about to change. The best part
about that is almost no else sees it happening. So when it does, the
market reaction will be stronger.
Frankly, we wonder why at near 6 year lows - AFTER a breakout in corn and
upside reversals in soybeans (May19) and wheat we don't own even MORE of
past production sold. In fact, with perhaps the best opportunity to own
grain in perhaps 6 years - why shouldn't we own at least 2 years of
production??? As we roll into spring, its highly likely to go up, and
after breakouts last year, the upside potential is quite high and
downside risk minimal when buying at or near lows.
When everyone is bullish, sell!!! In 2012, we sold 3 years of production
when everyone else was bullish at $6.50-$8 corn - >30% profit margins
(the highest I've ever seen) and basically blew every other marketing
firm out of the water by selling when everyone was bullish. Now, the
opposite situation exists as everyone is bearish, so why not own 2 years
of production at the lows/beginning of an uptrend??? Buying when
everyone is bearish at the end of a long, 6 year bottom!!?
My market comments last week are worth repeating: "One thing that is
prevalent in 2020 is the negative market attitude that
almost everyone has. Its as if the bottom of the market will last
forever (and we are at the bottom of historical prices), and prices will
never go up. I am taking the opposite view - that prices are already at
the bottom, and there is almost no risk left from these levels at a
tired, 6 year old bottom. The last thing in the world I want to do is
sell now, as you pretty much cement selling at the bottom of the market
if you do. In contrast, I think today might be the best buying
opportunity I have seen in 6 years.
Why am I bullish? I have noticed some positive developments since last
May that I cannot ignore: 1) Soybeans bottomed on monthly charts, with a
upside reversal in May19 that has not been violated to date. In fact,
the uptrend line has held through the past 9 months perfectly. 2) Corn
broke out of a 5 year 'bottom' range last May, projecting improved corn
prices the next 5 years, 3) Trade agreements galore have been approved in
the past 6 months, including Japan, Mexico, Canada, and China - our
biggest trade partners, 4) More trade agreements are likely, including
Phase2 China, the United Kingdom, and the EU. 5) We came off a
disastrous production season last year, with 20 million acres of PP
(almost 10% of corn/soy acreage) and 5% below trend yields in corn and
soybeans. Do we really have plentiful supplies??? 6) Its likely we'll
have 10-20 million acres of PP again in 2020 with some spring adverse
When everyone is bearish, buy!!! That's an old trade rule, and perhaps
the reason it is so successful is it catches everyone leaning the wrong
way. Is that the situation now???"
It may be time to "put up, or shut up" as we used to say at Midway, my
old high school.
Ray can be reached at email@example.com.
Ray is President of Progressive Ag Marketing, Inc., a top Ranked
marketing firm in the country. See http://www.progressiveag.com for
rankings and link to data from Top Producer Magazine and Agweb.com.
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