The uncertainty and volatility of the feed and grain market

How greedy as opposed to needy do we have to be?

A producer recently called concerned about the volatility and uncertainty in today’s Agricultural Commodity Markets. Their farm recently completed an expansion project and wanted to discuss marketing alternatives that would assist them in mitigating financial risk. The following quote really hit home as it sums up one of the principle marketing axioms that we discuss in our monthly marketing meetings, “How ‘greedy’ as opposed to ‘needy’ do we have to be?”

With the uncertainty and volatility that have consumed our commodity markets since the start of the current marketing year (2010-2011), some producers are starting to re-evaluate their pricing objectives. During the week of June 13, for example, July corn futures experienced a drop of over a dollar from Monday’s high to Friday’s low. The settlement range for the week was just over 0.82 cents a bushel. After the June 30 USDA acreage report, the December corn futures had a two-day limit-down move, only to recover two-thirds of the move in the following week.

Dairy and livestock producers that traditionally purchase a substantial portion of their concentrate needs are concerned about the financial impact the price volatility can and could have on their equity position this year.

The 2011-2012 crop year poses several challenges for risk mitigation plans. With the slow and late planting progress in several states across the Corn Belt, producers are already questioning the potential for lower yields and the possibility of lower quality grain as well. While the growing season will determine the final yield and quality outcome for the years, producers are starting to question the use of alternative feeds and feeding programs that may be needed to balance the expected feed cost, relative to expected enterprise revenue.

Forward pricing strategies may also play a significant role in enterprise profitability this year as price swings will most likely continue to be extreme, relative to recent years. USDA and WASDE supply and demand reports, along with weekly crop progress reports, will continue to monitor crop development. Monthly grain and livestock outlook can be found on Dr. Jim Hilker’s Market Outlook web site, and Michigan Farm News.

As we continue to progress through the growing season, producers will need to address the “need” for financial stability. This may not be the year to let “greed” determine your risk management plan. We will, most likely, continue to see volatility in the market place, fueled by production uncertainty, demand uncertainty, and global financial uncertainty.

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