A time to rest
“There is a time to plan, a time to do, a time to stop, a time to rest.” Richard Brock shares his insight on what he sees for upcoming commodity prices.
By Richard Brock, Brock AssociatesI’m relatively certain that all readers of this publication are too young to remember Roy Longstreet who owned a company in Saint Louis called Clayton Commodity Services. In 1967 he wrote a book titled “Viewpoints of a Commodity Trader” that contains philosophical statements relative to trading and life in general. One of his that I tend to agree with in trading commodities, “There is a time to plan, a time to do, a time to stop, a time to rest.”
The resting comes hard for most of us. Difficult to do when you’re involved in the day-to-day battle of commodity markets. But there comes a time that is necessary to walk away from a market just to get a clear head. The grain and livestock markets have made incredible price moves over the last 12 months. For example, cash corn prices are down 30% and soybeans down 25%. Milk is up 10%. Hogs down 10% and beef carcasses up 6%.
Only since May, December corn futures have dropped from $4.90 to slightly above $4.00. Soybeans have gone from over $12.00 to $10.65. Soybean meal prices have dropped from $385 on May 7th to $340 on July 11th.
Some farmers are in full panic mode. Subscribers to The Brock Report, for those who followed the advice, averaged $5.50 per bushel on their corn sales that were harvested this past fall. Hopefully many have done even better. Cash prices in most of the Midwest just hit $4.00. On a 200-bushel per acre corn farm, that is a difference in cash flow of $300 per acre. The separation among farmers is going to be the largest in the last 10 years from the top 20% to the bottom 40%.
Farm equipment sales for the most part have hit the skids, but that is after coming off two record years. Many dealers and manufacturers are going through layoffs or already have. Farm land auctions are down approximately 60% throughout the Midwest. Values are still holding steady and will likely stay that way as a result of very low debt on farmland. For example, 84% of the land owned in the state of Iowa is owned debt free. Hard to push asset values down when there is almost no opportunity for forced liquidation sales and the neighbors can and want to buy the land around their farm.
Impact on feed industry
Volatility in grain prices is going to shrink. Corn, soybeans and soybean meal prices are likely all trading in the bottom 15-20% of their annual price range. Not much left on the downside and not much news to propel prices higher. The June 1 stocks report showed that farmers had the largest quantity of corn on farm in history, and the most soybeans on farms in history aside from 2019 and 2020. Much of that still needs to move to the market between now and October.
Commodity prices have always been very cyclical. When corn is at $8.00 per bushel, farmers are notorious for saying “We’ll never see $5.00 again.” Then the market goes to four and the same statement repeats. Except now we are looking up and not down.
All of this is going to make buying much easier for feed companies.
