Marketing: Hard To Predict

CS Feb 10 CoverWill the year 2010 present the risk management challenges that 2009 did? So far, it looks like it could. In less than two weeks, March corn futures prices have ranged about $0.57.

Although currently overshadowed by the supply/demand estimates, other factors also impact market uncertainty, volatility and risk. Some of these are energy prices, econo-mic conditions, value of the dollar, speculation/investment, world grain supply/demand, 2010 acreage, weather and politics.

These factors have contributed to complicated, risky markets that are difficult to predict. It is easy to get focused on one or more factors that seem to be currently driving the markets, then another factor unexpectedly influences trading and dramatically changes market action. Trying to outguess the markets appears more futile and costly than ever.

Significant Market Changes?
The latest supply and demand estimates have made storing 2009 corn and soybean production more risky.
Among the most difficult marketing decisions is making sales after a significant change occurs in the market, especially if prices have turned lower. This situation requires a disciplined approach to marketing that takes into account profitability/market price risk management.

The sharp price declines triggered technical sell signals. The penetration of short-term uptrends, areas of price support, moving averages, etc., are signals of a possible market turnaround. The problem, of course, is that the rapid price drop results in significantly lower and disappointing prices when compared with recent prices.

However, futures prices in most cases still result in profitable cash bids that are within or near the USDA’s projected price ranges. Downside risk should be recognized before rejecting adding to sales, especially if a large percentage of the ‘09 crop is still in storage.

In spite of the price declines, new crop corn futures prices continue to offer profit potential. Although the prices are sharply lower, they result in new crop corn bids near many analysts’ projections for average 2010-11 corn prices. While these are less favorable prices than only a week ago, it is hard to argue against making new crop corn sales at profitable levels. However, in spite of the downside price risks, seasonal trends and other market factors suggest that prices could recover. This, along with all of the uncertainty and volatility in the markets, suggests a cautious approach of spreading sales and protecting profits.

Read “Decisive Marketing” by Melvin Brees in its entirety at

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