In this Q&A with Dan O’Brien, Kansas State University Extension Agricultural Economist, he focuses on grain market analysis and forecasting.
Q&A with Dan O’Brien, Kansas State University Extension Agricultural Economist. O’Brien focuses is in the area of grain market analysis and forecasting. Working in Kansas, he gives attention to U.S. and world corn, grain sorghum, wheat, soybean, sunflower and canola markets. He also works with crop production economics-related issues, such as cost of production and profitability of irrigated and non-irrigated crop enterprises throughout the state of Kansas but with a particular emphasis on western Kansas. He is located in Colby.
Balancing areas of reduced corn yields in the U.S. with those that are doing well—it seems that a 14.5-14.9 billion bushel U.S. corn crop is a fair estimate at this time with the possibility of more or less DEPENDING on weather for the remainder of July and August.
Marketwise, it seems that at least Kansas grain elevators are expressing optimism for new crop U.S. grain sorghum export sales—based on their strong forward contract bids in the past few weeks. It seems that there is anticipation that major world export buyers—being the savvy marketers that they are—will likely wait for any harvest price lows to purchase U.S. grain sorghum in quantity. If this happens, then watch for local basis improvements for sorghum that may be fleeting as grain elevator managers fill unit/shuttle trains for export.
As of this writing (July 27, 2021) there are “new crop” 2021 grain sorghum forward contract opportunities in local elevators that are markedly above cost of pro-duction and should be seriously considered for action. The biggest key to making marketing decisions in this environment is to have a reasonable point of reference, or reference price, to use for making marketing decisions. IF a farmer’s point of reference is full economic cost of production, or full economic cost of production plus 10-25 percent, then current new crop forward pricing opportunities are attractive and actionable. However, if a farmer’s point of reference is the highest price that was ever available in spring-summer 2021, then they are set-ting goals that may or may not ever be attained—and are likely to burden themselves with unrealistic expectations. A sustainable farming operation takes full economic profits when they are available for judiciously chosen amounts of their expected production. Those farming operations that are taking on financial risk are those that in essence speculate too frequently in the cash market and end up losing tens of thousands of dollars in lost profitable marketing opportunities.
“Doubling down” implies taking on more financial risk to try to dig out what has turned out being an unprofitable marketing decision. After first doing no more harm to their financial position, I would recommend loss minimizing, judicious decisions for the remainder of the crop. And, who knows, but the forward contract price commitments that now seem to be too low may end up looking OK to very good if an unanticipated market downturn for agriculturally related or non-ag-related reasons. I would advise managing as well as you can at each step of the way through a marketing plan and not taking on undue excessive risk by jumping in and out of market positions.
This story originally appeared in the Summer 2021 Issue of Sorghum Grower magazine.