Grain farmers gathered recently to attend Penn State University’s Grain Marketing Workshop, in Leesport. The workshop was geared towards grain producers interested in learning more about commodity grain marketing, John Berry, Penn State Extension Ag Marketing Educator, said.
Featured speakers included Jamie Burton, Vice President of Jack Rich, Inc, who spoke on the energy market outlook, and Rich Posson, a senior market analyst for Ag Financial Strategies. Guest were later treated to a show by farm comedian Jay Hendren, an Ohio farmer whose stand-up farm humor offered a comedic ending to an otherwise intense day of commodity marketing information.
“The target market is primarily grain producers. Some also have livestock and/or poultry,” Berry said, indicating that the farm size for producers in attendance at the workshop ranged from several hundred to over 4,000 acres of field crops.
Fossil fuel’s commodity market is connected to the commodity grain market. Although the connection may not be a direct one, “it all falls under farm management,” Berry said. “Knowing the cost of fuel in the future helps establish a break even price. Farmers that do not know their cost of production are guessing at pricing. Also, corn and soybean prices are tied to oil and ethanol prices.”
Barton offered the farmers an overview of how energy markets function, as well as a prediction of upcoming fuel pricing.
“Crude oil drives everything,” Barton said. With “low cost wells, more efficient wells,” being operated in the United States today, a glut of crude oil – as well as gasoline and diesel fuel – has resulted, with the United State’s inventory very high.
The horizontal drilling technique has been a major factor in accessing wells, Barton ascertained that “we have an abundance of fuels now,” and “we’re overloaded with oil. OPEC (Organization of the Petroleum Exporting Countries) is a non-factor now,” he said.
The strong dollar, weak demand for oil, and increasing supplies indicate that the price of oil is not going to soar back up anytime soon, Barton predicted.
Barton spoke of biodiesel as “an interesting concept,” that will fail when most people won’t buy it if the cost is higher than fossil fuels.
“We all want these things to work,” he said of renewable energy sources. But they still require government subsidies to function, and “we have an abundance of (fossil) fuels.”
Conventional agriculture’s recent focus on alleviating the industry’s impact on climate change, as evidenced by Cornell University’s recent Dairy Environmental Systems and Climate Adaptation Conference, emphasizes the realities of climate change and the need for farmers to adapt to the changes caused by global warming, as well as to reduce their own carbon footprints. But Barton expressed skepticism that global warming exists.
“I don’t know where global warming comes from,” Barton said. “The idea that global warming is a threat” is not reality-based.
Posson, addressing the impact climate has on commodity market cycles, disagreed. “Look at temperatures. Global warming is real. It’s warmer,” but someone somewhere is still going to be very cold, he said. “The corn belt has been sheltered from global warming for several years compared to the rest of the country.”
Commodity grain markets
Posson utilizes a cyclical business cycle model to offer predictions on the 2016 commodity grain market. The model includes cyclical, historic trends of prices, supply and demand, economic factors and climate data.
While 2012 was the result of a 27-year drought cycle, 2013-2015 were “good crop years due to cyclical low temperatures,” Posson said. “Be prepared. It may be time for a problem here in the next three years for these crops.”
Historically, bear markets – such as the current one for corn and soybeans – last for less than seven years, according to Posson. He expects a market turnaround, as we are currently in year seven. The increase in supply over the past few years, combined with slow global economic growth, caused the industry to “compete from a lower price perspective.”
“The economy really should get better in the next three to four years,” Posson said. If corn drops below $3.40/bushel, “something is wrong,” Posson said, and suggests that farmers should begin to sell as soon as the market begins to move back up.
“We’re due for a five to seven year cycle low in yield and production in corn,” Posson said.
He recommends that if the price of corn increases from the current $3.67/bushel to about $4.50/bushel, farmers consider selling some of their crop, perhaps holding onto some as a gamble to see what happens. High prices of $6.50 a bushel are not expected to occur in the next several years, he advised.
Soybeans are in an elastic market, and while they might show a small spike in 2016, it will go right back down.
“We’re swimming in soybeans,” Posson said. “The demand is huge. Soybean demand around the world is just incredible.”
As for wheat, which is due for a rebound, Posson suggests selling at $5.30-$5.40/bushel.
“The world has lots of wheat,” he said.
The overall message Posson offered the grain farmers was that farmers should sell in “pops” up in the market and
unload some of their stock. His long-term prediction is that prices will climb in the 2020s and 2030s, but “you still have to market your grains every year.”
“The market is on the way up. With any luck at all, farm revenue will come around in 2016 or 2017,” Posson said, again advising farmers to sell, during the next two-three years, when prices begin to increase.
Overseas soybean production in Brazil and Argentina have impacted United States pricing. Argentina has decreased tariffs, while the U.S. dollar is so strong versus currency in Brazil. He anticipates a “new flood” of soybeans as farmer release grain they have been holding onto for some time.
Corn exports, too, are lagging from the strong dollar. Ethanol demand is there, and does help, but it is not enough to elevate prices, Posson said. He predicts that a three-year low in the global economy has already occurred, and that lower crop supply due to weather, combined with higher corn and soybean pricing, will give a better baseline.
Berry suggests that predictions are “very interesting,” but is skeptical about farmers relying on predictions to manage their business.
“If the weatherperson on TV can not predict next week’s weather, how can anybody tell me the price of grain next year? In the work I do throughout the winter with small grain marketing discussion groups, we focus on the financial needs of individual farms and the prices required to meet their obligations as marketing fundamentals,” Berry said.
Most of the commodity grain farmers in Pennsylvania sell into the feed mills, primarily located around Lancaster, according to Berry. Some feed mill representatives were also in attendance.
“Our corn goes to dairy, swine and poultry feed. Soybeans get processed so the oil is for cooking and the meal is a protein supplement for these same animals, and our wheat is used for pretzels and pastry,” Berry said.