GLIDDEN - Gaining an edge in today's high-stakes ag industry requires timely information, a global perspective and a willingness to play the basis, said a long-time Chicago Board of Trade professional, who spoke in Glidden recently.
"These are not the markets of old, and volatility has been extreme since 2006," said Kevin Van Trump, who was invited by Iowa Savings Bank to share his top marketing tips with approximately 100 local farmers and other guests during an agricultural marketing seminar on Feb. 1. "When the basis is ripping higher and prices are good, you don't want your bins completely full."
Van Trump, who was a professional trader on the Chicago Board of Trade for more than 20 years before establishing his marketing firm Farm Direction, is conservatively bullish on ag commodities in 2012.
-Messenger photo by Darcy Dougherty Maulsby
Kevin Van trump, a professional commodities trader and founder of Farm Direction, offered his tips to help farmers improve their marketing know-how, during a Feb. 1 seminar, hosted by Iowa Savings Bank in Glidden.
He urged farmers to pay close attention to the energy markets going into spring, however.
"I believe the markets are under-valuing the risk in the Middle East, so I'm encouraging farmers to purchase diesel now.
"As the United States pulls out of the Middle East, Israel, Iran and Saudi Arabia are all positioning for power, and none of them get along. If the Strait of Hormuz is closed, crude oil could shoot up to $250 a barrel in a matter of days.
"It's wise to keep some on-farm fuel in storage to get you through planting."
$8 or higher corn?
On the grain side, the weather remains one of the biggest wildcards. Weather records show that some of the warmest winters have also produced some of the warmest summers, said Van Trump, who noted this could have a huge effect on trend line yields in 2012.
"If we get trend line yields of 162 bushels per acre or more, we may see $4 corn. With 155-bushel-per-acre average corn yields, we could see $5.50 corn.
"If we have 150-bushel average corn yields across the board, however, that could put corn at $8 a bushel or more. That's how critical 10 bushels will be."
It's also important to keep an eye on global demand for corn, said Van Trump. While Japan has traditionally been one of the biggest markets for U.S. corn, the Asian nation has been looking for alternative sources from Europe and Argentina in recent weeks.
Japan is also struggling with tremendous debt issues, Van Trump said. "Japan could become the next Greece in the next few years. If this happens, we could take a hit in the corn market."
In the soybean sector, China remains the key player to watch in the global market. Van Trump noted that the Chinese have reduced their soybean acres and plan to grow more wheat and corn, since they believe these crops fit better with the nation's climate and soil types.
This begs the question of where China will buy its soybeans, said Van Trump, who noted that the quality of Brazil's soybeans is traditionally better than the quality of U.S. soybeans.
"We have the advantage of being able to ship beans to China faster than Brazil can," he said. "We don't know whether China will wait for higher-quality South American beans, or whether they'll go to the U.S. to get beans faster."
South America will also impact the U.S. ethanol markets, Van Trump said. Nations like Argentina are looking for ways to reduce their dependence on foreign oil and have announced plans to retain much more of their domestic corn crop for ethanol production.
"As you see more ethanol production in South America, this should be a big bonus for us, in terms of more U.S. corn exports."
The U.S. ethanol industry is in good shape, despite losing the blender's credit, Van Trump added. "U.S. ethanol exports are gaining steam, and I think the issues in the Middle East will be good for U.S. ethanol in the long term."
While times are good in ag right now, infrastructure remains an Achilles heel for U.S. agriculture, Van Trump cautioned.
"Billions of dollars are being invested in infrastructure in South America, which is setting itself up to feed the world.
"They're also talking about 100-row corn planters to get the job done, so I think we need to be prepared for these big changes that may be coming."
While no one can predict the future, Van Trump is urging farmers to make the most of the opportunities the market is presenting right now.
"Trying to pick the tops and bottoms of the market is a bad move. With the profits we're seeing today, grab the money you can, sock it away and don't get leveraged to the hilt."
You can contact Darcy Dougherty Maulsby by e-mail at firstname.lastname@example.org.