The Dangers of Thinking in Absolutes

October 5, 2021 | Jackson Waage | AgFocus-Ag Focus | BankingFocus-Banking Focus

 

Jackson Waage

Jackson has been with Hurley & Associations Since 2015. His favorite part of the job is applying personalized marketing plans to each individual producer, as well as furthering clients’ education in the marketing tools available.   A few weeks ago, I found myself back in my hometown of Groton, SD catching up with friends on life and family. As we stretched further into the night inevitably, coming from a rural farm community, the crop markets got brought up. We happened to be talking about how the crops were dealing with the heat stress and I got asked a question that I have heard numerous times over the past few months: “There’s no way the markets go down from here, is there?”. I smiled and thanked him for giving me the topic to my next newsletter article – The Dangers of Thinking in Absolutes.

 

Let us first take a step back in time to June 2020 and remember the headlines. The United States just made it through a spring mired with COVID lockdowns leading to an expected record decrease in oil consumption. There was growing fear of ethanol plants closing their doors due to lack of profitability. The USDA announced in the monthly WASDE report that we had a projected record carryout of 3.32 billion bushels of corn and 395 million bushels of soybeans after the 2020-21 Crop Year. As we made our way through the summer of 2020 there was a sentiment within the ag community that higher prices were a thing of the past and that it would be years before we would have an opportunity to see sustained profitability.
  
Fast-forward to July 2021 and the headlines flipped the script. Crude oil prices climbed back to pre-COVID levels as global demand recovers. Ethanol plants and export facilities are competing for bushels, offering corn basis bids at levels we have not seen since the 2012 drought. The USDA announced in the July WASDE report that we will have an estimated carryout of just 1.08 billion bushels of corn and 135 million bushels of soybeans after the 2020-21 Crop Year, slashing their June 2020 estimates into a third. As we make our way through the summer of 2021 there is a new sentiment that $5.00 corn and $13.00 soybeans are here to stay.

If someone would have told you last June that we would see crop prices rally to our current levels, you would have laughed them out of the room. And that is the point. Attempting to predict something with as many variables as the corn and soybean market is setting an unrealistic expectation where a person will consistently fail. Whether it be June 2020 when the assumed outlook in agriculture was grim or July 2021 where the growing assumption is assured years of financial prosperity, I would caution the idea of absolute thinking as the only thing that is guaranteed is what we have today. 

Instead of investing time attempting to outguess the market, I would challenge you to sit down to analyze your own operation’s current opportunities and threats. Challenge the status quo and determine if there are key decisions you can make today to reach goals and milestones down the road. 

Here are a few questions you can answer to get started:

How do you define success regarding your farm operation?

What are my 1-year, 5-year, and 10-year financial goals for the operation? Can I reach any of those goals today with where 2021, 2022, & 2023 prices are?

Am I allowing the fear of rapidly increasing input costs to hold me back from making strong business decisions to secure revenue? Is my fear of increasing input costs for next year rational based on history?