MARKETING CHALLENGES IN A CHALLENGING YEAR Paul Stoddard Senior Lecturer Department of Agricultural & Consumer Economics
“May you live in interesting times…”
“I’ve never seen anything like this year…” ‘80 ‘83 ‘88 ‘12
A black swan? All houses? “Let’s discuss some potential black swans…” Positive or negative…
A Challenging Year The good news One per generation?
Source: Irwin, S. "IFES 2016: Long-Term Weather and Prospects for a Recovery in Corn Prices." 11, 2017. 6
Some perspective… We’re coming off a series of fantastic crop years! Big increase in APHs! https://www.dtnpf.com/agriculture/web/ag/blogs/fundamentally-speaking/ blog-post/2018/12/19/looking-ahead-2019-corn-yields
What if? A “realization” market? 9/25/12: $7.40 8/21/12: $8.39
A short crop has a long tail Source: futurestradingcharts.com 1/1/08 1/1/09 1/1/10
Price rations demand Eventually… ALWAYS…
A short crop has a long tail Typically 1) the drop is almost completely unexpected 2) comes when news is most bullish 3) goes farther/faster than expected 4) so we don’t realize it was the peak until much later 5) so we call it a pullback in a bull market
A “Realization Rally”? Implications for next year?
Source: futurestradingcharts.com 9/14/06
Acreage Shift? Sept 1, 2006 Cash: $2.20 & $5.19 SB = Corn x 2.36 Dec 1, 2006 Fall 2007 bids: $3.40 & $7.04 SB = Corn x 2.07 Big Acreage Shift! Dec 1, 2007 Fall 2008 bids: $3.96 & $9.71 SB = Corn x 2.45 Big Acreage Shift!
If we have a realization rally this fall… Should I sell more than one year’s crop? Can you lock in more than one year’s expenses?
If…then If you make a 2020 planting decision based a Fall ’20 bid…
Sell more than one crop year? Spreads won’t keep up 2019’s impact on 2020 will be muted (demand will respond) Beyond 2020, traders assume average production
There will be a few spectacular marketing failures Long + Long = Texas Hedge If you can’t tell me…
Remember… Option strategies? Why Nov 22 is important What will we know by then? Don’t forget to subtract 1) 2)
Prices 7/30/19: Sell fall corn at $4.13/bu Remember… Replace with a.t.m. Dec call – Buy Dec 420 call at 24 cents; expires Nov 22 Net = 413-24 = 389 in your pocket; need +24 to B.E. Option strategies Apple to apples? Prices 7/30/19: Sell fall corn at $4.13/bu Replace with a.t.m. July 2020 call – Buy July 440 call at 36 cents; expires June 26 Net = 413-36 = 377 in your pocket; need +36 to B.E.
Remember… Option strategies? Drip, drip, drip… 2019 Marketing Year is very young! Premium + commission Premium + commission Premium + commission
Remember… A word about basis…
It’s never been more important Enterprise units: good and bad news
Recency Bias If something works well most of the time… If something worked well last year…
December Corn Seasonal Trends (2000-2017 Futures I ndexed) But what about counter-seasonal moves? Slide used by permission of Steve Johnson, Iowa State University 26 Source: www.cffm.umn.edu, Usset, October 2017
Things that normally don’t work, work well in the oddball years Storing too much grain into summer Not selling new crop at first sight of profitable price
An interesting year? Even a blind hog finds a few acorns…
Best Practices for Surviving & I ’ll never let you go! Thriving 29
What if?
What if?
Look for the management lessons from 2019
How important are the 2019 MFP payments? Market Facilitation Program Payment Impact on Central High IL Case Farm Financial Position Source: Gardiner Farm Income and Policy Simulator Source: Swanson, K. and G. Schnitkey. "MFP Impact on 2019 through 2023 Incomes and Financial Positions." farmdoc daily (9):134,Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 23, 2019
Best Practices for Surviving & Thriving • Make small mistakes; don’t swing for the fence • Especially if you’re young and/or in debt • Don’t forget the the number one goal is to BE HERE TO PLAY THE GAME AGAIN NEXT YEAR • Every generation of farmers experienced a high impact event that is unprecedented in their experience • My Grandpa’s generation didn’t see the Great Depression coming • My Dad’s generation didn’t see the Eighties coming • What is it that your generation doesn’t see coming? • What if your generation has more than one? 34
Best Practices for Surviving & Thriving • But remember also • Every generation experiences short periods of unprecedented prosperity that are entirely unexpected – POSITIVE black swans 49
Thank you for your time! pstoddrd@Illinois.edu
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