Barb Konkel, a Michigan farmer and grain buyer for Max Yield Cooperative, offered his advice on how to navigate through some of the wildest markets in history
With corn and bean planting just around the corner, Barb Konkel, a Michigan farmer and grain buyer for Max Yield Cooperative offered advice on how to navigate the turbulent waters of the markets.
“Marketing is really not that tough,” said Konkel. “My purpose is to help take the scary out of marketing. How do you eat an elephant? One bite at a time.”
The first rule is to understand economics.
“This rule is easy; simply understand supply and demand impacts the price,” she explained. “The 2011 carry out is forecast at 801 million bushels; the supply of corn in the U.S. is at a historic low, falling dramatically in the last couple of years. The supply is tight, so price, in turn, is historically high. At the end of March, the USDA will supply a prediction for corn acres planted this year. The 2012 forecast is looking at 94-95 million acres, with the trend line yield of 165 bushel per acre, with a total crop of 14,235 million bushel”
With a larger supply, price should drop, according to Konkel.
“There are two factors that will impact price,” she said. “Corn demand has fallen this year. Ethanol has been the shining star, from a demand standpoint, until recently; it has stabilized. Exports have been a major contributor to the decrease in demand. Why? World production has increased. It’s a world market; someone will response to a need.”
The world supply is tight, with corn demand growing at a staggering rate, according to Konkel.
“We in the U.S. need to be world competitive on price,” she stressed. “U.S. exports have fallen because we aren’t competitive in the world market. In the U.S. our corn is worth $283 per bushel, whereas, Argentina is at $269 and Brazil is at $249. We are simply not competitive in the global market place. The world needs a good crop from the U.S. to meet global demand, but once again, Mother Nature will tell the story. The weather this winter has been very mild. Today, the U.S. has some concerns going into spring, with the drought monitor pinpointing several states that will struggle with drought including the South and Southeast, as well as the Dakotas, Iowa and Michigan.”
The second rule is to remember that profit is a good thing.
“What I mean by profit is a good thing, is that it’s important to lock in profits,” she stressed. “Today, we are above breakeven points; corn prices are historically high. Lock in profits when you get the opportunity. Keep it simple. If you don’t 100 percent understand the strategy, don’t do it.”
The third rule is to understand emotion and have the line ready.
“The most difficult part of grain marketing is the emotion behind our decisions,” said Konkel. “Farmers deal with this a lot when making decisions on marketing strategies. Farmers are concerned and scared about what to do in 2012. Don’t let emotions dictate your decisions. The corn market is fast and volatile, so don’t try to stay ahead of it. Lock in profits, while managing risks for potential challenges.”
Challenges include a struggling U.S. and world economy.
“As the U.S. dollar goes down, the world loses confidence, but it enables other countries to be able to afford our products,” she explained. “How about interest rates? How long can we expect them to stay low? Another concern is our city cousins; they simply don’t understand agriculture. They are 98 percent of the U.S. population; they control the vote. Other things to watch in the future include the 2012 Farm Bill and additional regulations that could make our business tough.”
However, life is good right now, she added. “Net income is up 28 percent in 2011. At the same time, we’ve seen production increases increase 12 percent in 2011, with a similar increase in 2012. Farm real estate average value per acre increased 15.9 percent in the corn belt in 2011. U.S. farm balance sheets are very strong today. The question to ponder is how financially healthy is your farm really? Can it withstand a drop in income or a break in the asset value? Give your farm a stress test. Is your farm positioned properly for the future?”
With a volatile and ever-changing market, these are important considerations to keep in mind when making marketing decisions in the future. Konkel stressed that locking in profits, managing cash flow and having a realistic plan for the future will be the keys that separate successful farmers from those who struggle in 2012 and beyond.