Another government report has come and gone and this latest one has had the impact of an earthquake that measures around an 8 on the Richter scale. The shock and after shocks will be felt far and wide. This was a big one.
I am a corn grower and as much as I like the idea of selling corn at almost $5 a bushel, I not sure I like all the other things that arrive with corn prices at such high levels.
When prices change one way or the other, whether you are a winner or a loser depends if you are buying or selling.
I have experienced government reports that have worked against me more times than they have for me. Those USDA reports are more likely to lower prices than raise them in my experience.
My trust for those reports is not great and the day before last Friday’s reports I sold 10,000 bushels of new crop corn out of the field because as I told the grain buyer, “I don’t trust what those reports do to the market. I will take a sure thing and sell.”
I sold those 10,000 bushels for $4.48 to my local ethanol plant and that is a great price. Limit up price moves means I could now chastise myself for acting in haste but I still have many unsold bushels to take advantage of future upward price movement.
On report day my elevator’s agronomist drove out to where we were harvesting our corn and informed us that they were out of the nitrogen market. Friday’s report sent a shock wave in the nitrogen market.
A week earlier, we contracted next year’s phosphorus and potassium, leaving nitrogen decisions until later. We will be selling higher priced corn but now we will be buying higher priced nitrogen.
As a corn grower, the higher prices raise new questions and potential problems.
Higher grain prices usually result in higher prices for all inputs from seed, fertilizer, and herbicide to machinery and land. Everything escalates accordingly.
Corn at these price levels after the report will make it tough for my customers, those people who buy my corn. Living within a half mile of an ethanol plant means I deliver all my corn there because they have a good price with a short haul.
I have much of this year’s crop contracted with the ethanol plant already for delivery in the coming months. Suppose the ethanol plant decides to shut down due to lack of profitability, are those contracts still in effect?
If the higher prices cause problems that result in ethanol plants shutting down or a further decline in livestock numbers or reduced exports, that will create a market swing in the other direction that leaves me paying for high priced inputs with a reduced income.
Now I am being squeezed by the market. Will my bushels that were destined for the ethanol plant have to be sold elsewhere at a now lower price?
These highly volatile markets do not do any favors for buyers or sellers in my opinion. Everything becomes a crap shoot, a roll of the dice.
USDA reports to me are like the old phrase we have heard before about “throwing a monkey wrench in the works.” Markets can change drastically in a matter of hours after a government report leaving everyone scrambling for cover.
They can have a huge impact either up or down while neither adding nor subtracting to the actual supply. Look what happened to prices last Friday because of the report when nothing actually happened to the total supply. We had the same number bushels Friday evening as we did Friday morning.
It was only a piece of paper with someone’s opinion. Frequently we hear that there may be a revision in the next report meaning they do not trust their report either.
I would prefer if the USDA just got out of the reporting business. I believe we could all just muddle through without them. There is enough guess work in farming without having to guess what the USDA is going to do.
Rye is a Farm News staff writer and farmer from Hanlontown. Reach him by e-mail at firstname.lastname@example.org.
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