For the typical farmer, grain markets range from exhilarating to annoying. There may be five minutes in between. Or five months. Or maybe more than a year, which has been the case recently.
Of the two main market players, one sees markets as a way to feed the family. The other player sees it as a way to build up wealth and create a comfortable retirement.
They disagree, and while the farmer may despise the investor, the investor cares less what the farmer thinks. There are many miles between Rural Route 4 and Fort Myers. And they rarely meet.
Currently, the farmer can see the end of a long journey to corn and soybean price levels that were never imagined a year ago, and certainly never by the previous generation who ran the farm and thought that $3 corn and $5 beans were reasons for the high fives.
The misunderstanding between the farmer and the speculative investor is based on their use of the grain market. Farmers may have visited the elevator three or four times, selling grain when cash was needed, starting when the 2021 harvest reached $5. And maybe sold over at $5.50 and emptied out when it hit $6, not wanting to wait for it to come back down to $4.
Investors bought contracts as the market rose, selling them to pocket the money, buying more as the market rose, and continuing to buy and sell until it reaches over $8. Few farmers sold a few bushels at this level, while the investor fueled the market with speculative trades. Sure, corn prices hit record highs, but most farmers sold corn long before prices peaked.
After corn prices in December 2022 hit $7.50 on June 17, they have lost about $1 a bushel in the past five trading days.
For the folks on Rural Route 4 whose corn looks like a Dole plantation in Maui, there seems to be no reason for corn prices to dip. For investors, be aware that the market must pull back, followed by another surge to provide lucrative opportunities. Such a steep drop is just another way to speculate on the downside.
Farmers have always been adept at market fundamentals. Acres planted. Cultivation conditions. Chinese purchases. Brazilian weather. Ethanol policy. Livestock fed and the other 1,700 factors that will drive the market up or down.
Investors might care less about keeping up with these, too many of which could turn on a penny and cause the market to lose a dollar. Speculative investors simply watch the market action, buying and selling and adding pennies or dollars to their bank account. Right now they are seeing the market go down, they have stopped buying contracts and are now cashing in.
Sell a corn contract today at $6.50, buy it back tomorrow at $6 and pocket the 50 cents. They don’t worry about how much corn will be harvested. Let the farmers worry about the fundamentals.
Stu Ellis is an observer of the agricultural scene in central Illinois.