Melvin Brees
Farm Management Specialist
University of Missouri Extension




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November 12, 1999

Bull or Bear Markets?

"A bull market needs to be fed. A bear market needs nothing at all." That market saying often describes how market news affects prices. Wednesday’s (11-10-99) USDA Report’s production numbers were described "about as expected." This expected, or no news, information would seem to suggest little change in prices. But soybeans ended the day with double-digit losses ($0.12-$0.13 lower). Corn and wheat both slipped about five cents. Some analysts referred to the losses as technical and not due to fundamentals since the production estimates were about as expected. They describe it as a situation where users saw adequate supplies, or no need to buy, and speculative selling took over—sending prices lower. There wasn’t anything to feed the bulls, so the bears took over.

While production numbers were near expectations, the report did contain negative information. Corn production estimates increased to 9.537 billion bushels, making this the third largest crop in spite of dry conditions in many areas. While soybean production estimates were lowered somewhat, demand estimates for crush and exports were also lowered. A similar situation also occurred in the wheat estimates with slightly lower production along with a reduction in exports.

The net effect of these changes is an anticipated increase in ending stocks (supplies). Corn ending stocks are expected to end up at over two billion bushels. While soybean stocks won’t be as large as was expected earlier in the year, they are still expected to grow from 348 to 395 million bushels. Wheat ending stocks are expected to increase from 946 million bushels to over a billion bushels. USDA also increased World wheat production and South American soybean production estimates. These increases suggest supply is still running ahead of demand, which is negative to prices!

How does all of this affect your marketing strategies? Many have been hanging on another market saying –"Low prices cure low prices." That will probably happen, but it may not happen soon. U.S. and World supplies appear more than adequate. It would take a significant increase in demand and/or a serious production problem to tighten supplies. Without either of these events, significant price rallies aren’t likely. This suggests that long term storage is very risky! Storage costs could easily "eat up" any price gains.

Wednesday’s report appeared to favor the market bears. Even if you are bullish long term, it is important to set realistic price goals and objectives. For example, USDA’s average price estimates are $1.80 for corn, $4.85 soybeans and wheat at $2.50. This suggests looking for winter rallies that improve on these expected average prices and utilizing the LDP or market loan strategies to maybe do even better. Taking advantage of these winter sales opportunities and then re-owning with call options or futures contracts may be a better strategy for capturing price rallies caused by production problems or demand surprises next summer.

-- Melvin

University of Missouri ExtensionDecisive Marketing - November 12, 1999 -- Revised: April 20, 2004