Grain markets can provide an exciting rush of opportunity or feel like a confusing risk better left to experts.
In a webinar hosted by Oklahoma State University, extension grain marketing specialist Kim Anderson gave insight on better understanding market changes and current conditions.
How It Works
To understand the grain markets, it’s vital to understand how market information is used to establish prices.
“I want to make the point that any number by itself is meaningless,” Anderson said. “A number alone with no other knowledge means nothing.”
Meaning multiplies for grain market numbers with additional information and context to come to conclusions.
“The big analytical firms, the traders, got all the information they could get their hands on. They made supply and demand estimates and they used those estimates to determine whether to buy or sell,” Anderson said. “If they're buying, the price goes up. If they're selling, the price goes down.”
As new information becomes available, prices change.
“You cannot predict prices because information is used to determine prices,” Anderson said. “New information causes prices to change and nobody knows what that information is.”
2021 Price Prospects
“I think the stage is set for higher prices,” Anderson said. “One reason is lower corn production. Two is increased wheat demand and lower stocks in wheat, lower stocks in corn, lower stocks in soybeans, lower stocks in grain sorghum. The stocks are lower and I think demand is increased.”
A fear of inflation may also have an impact on prices, as the United States significantly increased the amount of dollars printed in 2020, Anderson said.
From Anderson’s observations, farmers in countries with hyperinflation “will own commodities to sell when they need the cash or store over the long haul to maintain their value and wealth.”
Demand, and in turn prices, could decline if there is a reduction in COVID cases, changes in the demand and stocks philosophy or grain production increases.
Working the Numbers
“If you're determining what you're going to do with your land, use [2021 harvest forward contract prices] to determine potential deals,” Anderson said.
Anderson believes the forward contracts are some of the most important to consider.
“You need to put a hard pencil to how you’re going to use your land, labor, capital and management this year,” Anderson said. “Those forward contracts, I believe, are the best estimates of what prices are going to be down the road.”