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Analyst skeptical on continual bean price rally

MEMPHIS, Tenn. — Beyond practical advice on the future price for soybeans and grain, Richard Brock can offer farmers philosophical marketing advice.

The president of Milwaukee-based Brock Associates led off his presentation at the 2005 Cotton and Gin Show with such counsel.

He recommended that farmers remain cautionary about price speculation and have their own strategies in place.

“The real challenge in marketing is to know when to make a decision. Many people can have perfect advice, perfect information, and still mess it up royally,” Brock said. “No one is going to be right every year. That is the reality of this industry.”

The recent surge in soybean prices of about $1 over a two-week period was a major topic of conversation and of keen interest. Brock said the surprise sharp rise illustrates analysts’ unreliability.

“I don’t know of anyone who forecasted soybeans would rally in the past two weeks as it did. Everyone missed it,” he said.

Brock emphasized how much emotions tend to swing commodity prices. He observed that about 80 percent of the time, individual marketing strategies are based on emotion and not logic.

“One factor involved that impacts every market is human nature. It’s people that make markets go up and down, it’s not the facts,” he said.

Brock noted that while facts rarely change, peoples’ interpretations of the facts often oscillate.

“That fact that we change our minds is what makes the market go up and down. The facts change very little, but our perceptions of the facts change continuously and that is what causes market movement,” he said.

“When you understand how people react and overreact to markets, then markets begin to make a lot more sense.”

Brock said most people involved in the ag industry plan the near future based on the recent past — as far back as just six months — a move that is often shortsighted.

“Who thinks the price of today’s soybeans is good and who thinks the price is bad? Many who think it is bad think that because the price is not what they want. They don’t know what they want, they just know this isn’t it. There is no objective in mind.”

Brock said marketing strategies and attitudes framed around a bull market are completely different from those for a bear market.

The past two years, he said, there has been a contingent of farmers who waited until the last opportunity to sell their crops, and found it to be financially prudent.

But, he warned, such strategy in the distant past has proven effective in only two years out of every 10 years.

While not dismissing the possibility that soybean prices could continue to rise, he said history does not favor it, noting that the peak prices for soybeans in any given year more often occurs either early, as it is presently, or late.

According to Brock Report estimates, best-scenario projections put the average soybean price for this year at $5.25.

“More recently, the rumor with farmers is that the price of beans is going to continue to go up, but I will take my chances (selling) $6 beans off the combine right now,” he said.

Brock contends that the current price level for soybeans is fundamentally overpriced, based on supply levels.

He pointed to the fact that an overabundance of soybean production in both the United States and the world last year — which led to an existence of record-large carryover supplies — should lower the demand price for beans at some point.

Despite the likelihood that Argentina’s next soybean crop production may be under initial USDA estimates (due to drought-like conditions) and a similar trend in Brazil (for different reasons), world ending stocks of 50.7 million metric tons will be well over last year’s total of 31 million metric tons.

That development, the report predicts, will push the global stocks-to-use ratio to 25 percent, the highest since 1985.

An additional pivotal factor, according to Brock, is that total world grain production — including wheat, corn and rice — has been sharply below consumption levels for four consecutive years.

“Now, all of the sudden, and due mostly to the large corn crop we had here in the United States last year, for the first year in five years we are actually producing more than we are consuming,” he said.

Brock said the threat of Asian soybean rust alone might push the domestic soybean production higher for next year.

“We could be the same or higher than we were last year (in acreage). South Dakotans are going to plant a lot of beans. Why? They think you’re (Mid-South farmers) going to have the rust problem, not them,” he said.


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