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Corn+Soybean Digest

Has The Tide Turned?

This has truly been an incredible time in U.S. agriculture, and 2008 will certainly be recorded as the most profitable year in history for American grain farmers. The question: Will 2009 be as good?

As I write this article, there are a few people in my camp, but not many. That is the camp that is concerned that 2009 may be an unforgettable year on the downside; the opposite of what 2008 has been. Why be concerned?

Let's just do a quick review of some of the influences and factors in today's market:

  1. At $7.50, the corn market hit a brick wall on the demand side. Demand from ethanol plants didn't just slow down — plants were closed, construction was stopped and many were taken off the drawing board. This was a clear sign that those hoping for $8 corn or higher are doing only that — hoping.

  2. The energy market, in my opinion, made a major top the second week of July. This is not a short-term change in trend; this is a major long-term top.

  3. The commodity index funds (the ones that can only buy) were the primary influencing factor on the way up in the commodity markets. The largest fund of all, the S&P Goldman Sachs, invests about 75% of assets in energies and about 10% in the grain market. As a result, as energy prices go up, they need to buy more grain in order to maintain their balance. But this is a double-edged sword. As energy prices go down, they have to sell grain in order to stay balanced. This is a game of money, not fundamentals.

  4. Input prices are going to increase sharply. Almost everyone who sells something to a farmer has decided he wants to get a piece of the profit pie. Input prices going up and corn and soybean prices going down is not a good formula for profitable farming.

FIRST OF ALL, let's remember that one thing never changes: human nature. All too often, many people base this year's decisions on what they did wrong or right last year. Rarely in marketing does the same strategy work two years in a row.

With that said, the majority of grain producers in the last two years have sold corn and soybeans much too early while not booking their input prices early. They have learned that it pays not to sell grain, but to buy inputs quickly.

This year, these same people will book their input prices at high levels and then sit on unsold grain. They learned their lesson; they're never selling grain early again.

Hopefully, I'm raising a flag where no flag is needed. I would love to be wrong on this one. The big swings will likely not be as severe as I or some think, but there are caution flags everywhere that this may not be a soft landing.

In the long term, the fundamentals of the market will ultimately determine what corn and soybeans are worth. In the near term, however, this is a cash-driven market influenced primarily by commodity index funds, and he with the cash is the one who makes the rules.

Trends are like dominoes — they will feed on themselves. This has been a long-term bull market but unfortunately, we are now on the backside of the mountain. There will undoubtedly be some sharp price rallies along the way and possibly one more big weather scare. But the psychology and the cash flows in the markets have changed and thus too should business strategies.

Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit

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