Even though the USDA updates the WASDE every month, many things can change between reports. This is where understanding the forces that influence markets and following the market news becomes important. The difficult part is determining if the issues reported in the market news could impact supply and demand conditions or if they are influencing market psychology and attitudes about the future. Fundamental changes to supply and demand conditions tend to have longer-lasting impacts on price trends, while market psychology tends to create more intense short-term price movements.
What are the odds that prices will increase versus decrease given the new information? This is where planning and decision making becomes very difficult and each individual can have a different assessment of the conditions.
Let's consider two issues that are impacting crop market prices: the projected size of the South American soybean crop and the impacts of the U.S. government debt problems.
Private analysts and USDA forecasters are projecting a record soybean crop for Brazil and Argentina. These expectations are factored into the prices for old and new crop soybeans. What is the probability or odds that both Brazil and Argentina will produce a record crop in the same year? If there is a weather threat or potential production problem in either Brazil or Argentina that reduces planted acres and/or yields, U.S soybean prices could increase significantly.
However, if weather conditions are favorable and/or planted acreage increases, U.S. soybean prices could decrease further because of higher export competition.
Once again, what are the odds and how does this impact your marketing plan? How many bushels of old and new crop soybeans are you willing to leave unpriced, betting on a production problem in South America?
A more complex issue concerns the budget negotiations going on in the U.S.
Congress and the impact these negotiations will have on market psychology, consumer spending, business investment and growth of the U.S. economy. An agreement on future tax policy and federal spending should support commodity prices, while a stalemate could create significant uncertainty about future domestic and export demand, which would lower prices. What are the odds Congress will negotiate an agreement before Jan. 1, 2013? Will this have a major or minor impact on crop prices? Do the answers to these questions impact the timing of crop sales?
Developing and maintaining a current marketing plan takes time and effort.
However, it usually pays big dividends. Placing a greater emphasis on estimating the probabilities of price increases versus price decreases can add focus when making marketing decisions. It also helps reduce the emotional impact that could lead to making a poor decision.
Source: Frayne Olson, Crops Economist/Marketing Specialist