Death comes to us all. Life's but a walking shadow | If the futures market didn't exist but there was a weekly list of local prices published along with supply reports at intervals would prices be greatly different?
I raise this question because recently I was talking to a mid-level employee of a good sized regional feed mill, multiple locations and expanding. He wasn't at the top but he was pretty close. He made a remark that surprised me. I'll paraphrase what he said, " the board has become irrelevant, we pay what we need to to get enough product ( and charge what we can to have the business, not his words but implied)." I then asked him about forward contracts and again I'll paraphrase, " we do some of that, enough to keep some supply up but not as much as you might think."
A couple of things came to mind. First, a couple of times Ray Jenkins has made an offhand remark about what it takes to keeping the supply coming, etc. And two, I remember meeting the same owner of the mill above several years ago, back when his original business wasn't nearly as large and farther away. I was trying to sell some grain and he was trying to buy some, we had a brief discussion which ended with, " I'm sorry I just can't pay what you want." I thanked him for his time and that was that. Since then I've talked to him on the phone once or twice, He remembers me and I remember him, Hopefully now that he has expanded into this area more I'll get to sell him some corn, From all reports he pays a little better than the others.
In addition, if you look at JonSWKs's burn table you see that on average we use or ship somewhere around 260 million bushel of corn per week whether the price is $5 or $3.
Meanwhile, if you spend any time studying the corn futures market you rapidly come to the realization that by one measure at least only about 2 billion bushels of corn (out of the 14 billion to be harvested) has been priced. At the same time if you study technical trading ( and it is a perfectly valid, well established and successful strategy) you realize that the futures price is being arrived at by what amounts to a psychological game of chicken. In fact it probably isn't isn't even that but rather just a competition between computer algorithms applying those psychological principles.
The difference between $3 and $5 amounts to some $28 billion dollars in gross farm income, some 40%. If you count beans the difference between $12 beans and $9 beans is another $12 billion (30%).
So I ask you, aren't we producers being a little foolish and negligent by relying so much on the futures market to set the price?
Well, maybe there was coherent thought there somewhere. For what it's worth. |
Question for producers and endusers.
