Does your business have a ‘check engine’ light? (Grain Marketing)
(Editor’s note: John Hall is a professional commodities analyst.)
Last week I shared the rapid rise of inflation across the country. I shared that the Federal Reserve raised interest rates by three-quarters of a percentage point which was its biggest move since 1994.
I also shared that they will meet four more times this year and could continue to increase the rate at each meeting.
I shared a chart showing the Federal Reserve’s interest rate over time. I am old enough to remember the 1980s.
Interest rates charged by the banks were in the teens. I am sorry to say that farm foreclosures were commonplace back then.
What I did not share last week about the 1980s was that when we were called in to help, it was often too late.
Many independent businessmen put their head down, become introverts, shut up, and think they can survive if they work harder.
What do you do when the “check engine” light on your $250,000 tractor or your $70,000 pickup comes on? Do you just put your head down and convince yourself it will take care if itself?
My question for you is: Does your business have a “check engine” light? Do you have safeguards in place to monitor your business heath during these uncertain times.
Variable interest rates are rising. How much interest can your business survive before adjustments need to be made.
How would a homeowner monitor their family expenses? Let’s assume a homeowner has a mortgage, a car loan, and credit card debt.
Let’s assume the mortgage is a fixed rate, the car loan is a fixed rate, but the credit cards are variable. Let’s assume gas is bought with a credit card along with groceries and entertainment.
Let’s also assume this family has tried to pay down its credit card debt monthly. How long would it take this family to feel the current inflation we are seeing. We all know how easy it is to let the credit card debt grow and not pay them off monthly.
Monitoring an annual farm operating loan is much more challenging. Can your business survive 8-percent interest rates? What about 12 percent?
I question if any politician can provide us with a solution since most of them got elected by making promises.
Throwing money at problems has been the cause of inflation, not the solution.
With the current leadership, I cannot see how we can avoid a recession. I strongly encourage you to try and figure out how you can install a “check engine” light on your business soon.
Most weather forecasts appear favorable at this time for the grain producing areas. The Mid-Atlantic got moisture this past week. The current forecasts are also showing that the western Corn Belt will get normal to above normal rain in the near term. You recall that earlier forecasts predicted drier than normal for the western Corn Belt. That forecast has changed which suggested a bearish trend. That said, tasseling and ear fill are the key times for heat and moisture to influence yields. The next few weeks will determine yields.
The current crop looks good. The crop progress report released Tuesday, June 21 had corn rated 70 percent in the good to excellent category two points above the five-year average. Beans were rated at 68-percent Good to Excellent, four points above the five-year average for the time.
Two important USDA reports will be released June 30. The crop acreage report and the grain stocks report. The acreage report was a survey conducted the first two weeks of June and covered almost 66,000 farmers. Since there was still planting in North Dakota, this report will not be final. However, it will get us closer to the actual numbers.
Recall that USDA had predicted a switch of 4 million acres from corn to beans earlier this spring. We saw skyrocking fertilizer costs along with chemical shortages across the Corn Belt. Did this switch occur?
Allendale reports that the Grain Stocks report receives less market interest but it can be the bigger market mover than acreage. Grain Stocks is a quarterly survey of grain holders in the United States. In this report’s case it is an update on old crop corn and soybeans as of June 1. For wheat, it represents ending stocks for the completed old crop year. This is mostly a corn report as 40 percent of our demand, feed/residual, does not have a weekly or monthly report to monitor — ethanol and exports do.
We already know export shipments and corn for ethanol use during the March 1 to May 31 time frame. This report serves to update the trade on computed feed/residual use from the last quarter. In the past five years this specific period’s feed/residual ranged from 876 million to 1.118 billion bushels. To make this usage category more confusing, it is more tied to total corn supply for that year than actual livestock numbers.
(Note: I research material from Allendale, DTN, USDA, University Land Grants and other credible sources in compiling this article. It is not merely my opinion, but rather a consensus of experts in the trade. Looking for a marketing coach or someone to discuss strategies with? Contact me at email@example.com, or call 410-708-8781.)