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206 Clinton St.

Lester, IA 51242
(712) 478-4440

FAX (712) 478-4539

May/June 2015
Number 3
Climate Change
We have no plans to enter into the climate change debate, but would like to borrow the term as we think about the current
state of affairs in the farm marketing environment The definition of climate change regarding our environment refers to
changes in the statistical properties of the environment, caused by natural events or human activity, over long periods of
time.
U.S. Corn Ending Stocks/Use and Average Farm Price
During the last several years, the economic climate
surrounding cash grain production and marketing has
experienced dramatic changes, in a relatively short period
of time.
26%
$8.00
24%
$6.89
$7.00
22%
Stocks/Use Percentage
$6.22
Average Farm Price
20%
$6.00
16%
$4.46
$4.20
14%
$3.75
$4.00
$3.70
$3.55
12%
$3.24
$3.03
$3.00
10%
$2.71
$2.28
$2.50
$2.37
$2.43
$2.26
$2.07
$2.32
$1.94
$2.00
$1.82 $1.85
$2.42
8%
$2.06 $1.98
$1.97
6%
4%
$1.00
2%
$0.00
The next two years, ’13 & ’14, saw increasing
stock/use ratios, rapidly declining prices and
profit margins, probably the result of some
natural events such as more ideal growing
seasons and perhaps some human activity, a
change in the balance between the collective
decision-making of market participants, such as
producers and users.
The accompanying charts demonstrate some vivid
conclusions. Times of scarcity, characterized by low stocks/
use ratios, bring high profit margins. Times of bounty,
characterized by comfortable stocks/use ratios, bring low
margins. Obviously, the farm marketing world has
experienced an abrupt climate change during the last two
years.
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: USDA WASDE reports
Average farm price is weighted average for the marketing year, Sep ‐ Aug. 2014 numbers are estimates as of 03/10/15.
White Commercial Corporation
U.S. Soybean Ending Stocks/Use and Average Farm Price
$16.00
26%
$14.40
24%
$14.00
$13.00
Stocks/Use Percentage
22%
$12.50
Average Farm Price
20%
$12.00
$11.30
18%
Average Farm Price

0%
90
$10.10$9.97
$10.10
$9.60
$10.00
16%
14%
$8.00
$5.74 $5.58$5.56
12%
$6.72
$6.40
$6.00
$7.34
$7.35
$6.47
$6.43
$5.74 $5.66
$5.53
$5.48
$4.93
$4.63 $4.54
10%
8%
$4.38
$4.00
6%
4%
$2.00
2%
$0.00
0%
90
91
White Commercial Corporation
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: USDA WASDE reports
Average farm price is weighted average for the marketing year, Sep ‐ Aug. 2014 numbers are estimates as of 03/10/15.
Ending Stocks/Use
Crop years ’10, ’11 & ’12 represented an
unusual three year period of declining stocks/use
ratios in corn and soybeans, leading to record
high prices and profit margins in farming. No
doubt this was the result of less than ideal
growing seasons (natural events), and extremely
strong demand (human activity).
Average Farm Price

Ending Stocks/Use
18%
$5.18
$5.00
The results of economic climate change in the farm economy are crystal clear; profit margins have evaporated. The
challenge today is that commodity prices react quickly to changing supply/demand circumstances, while input costs react
more slowly, stealing the producers’ opportunities almost overnight.
How do we deal with such changes? An internationally renowned change specialist, Dr. Mark DeVolder, has identified that
companies and individuals alike often experience a three-stage process as we deal with major changes. Those stages are:
A) Crisis: During the crisis stage we must accept the reality that change has taken place and let go of the past. What
must we stop doing, what must we start doing, what must we keep doing?
B) On Hold: Time passes, nothing happens, eyes and ears are open, searching for new opportunities.
C) New Beginning: Let go again, take a leap of faith and move forward.
A crisis in farm marketing has, without doubt, taken place. For a few years, profits were easily attainable, but have been
under severe pressure for some time. Accepting the reality of this change is crucial to moving forward. Farmers, it seems,
have been in the On Hold phase of dealing with the change for the last year or so, very reluctant to sell both 2014 and 2015
crops. We are sympathetic. But now is the time to enter stage 3 of the change process, if you have not already done so,
and to make a new beginning. The task is formidable since, at this juncture, input costs are stubbornly resisting following
the downward trek of commodity prices.
Take a look at this US Farm Returns chart.
Note that the returns are based on average
prices received and USDA costs. It appears
that there may have been an approximately 10
year span when profits were not available, but
be assured that many proactive producers
were enjoying profitable farm marketing results
during each of those years by carefully
managing and tracking their crop input costs
and intentionally pursuing and capturing
above average prices when they were
available. This same strategy will be the
winning strategy as we adjust to the change in
the economic climate today. Being average will
not be good enough.
U.S. Farm Returns per Acre
Avg Price Received x Yield ‐ Cost
$350
$300
1990‐2012: Final USDA numbers
2013: USDA cost numbers as of October 2014, yield & price as of March 2015
2014: Cost estimated at 3% lower than 2013, yield & price as of USDA March 2015
$250
$200
$150
$100
$50
$0
‐$50
‐$100
‐$150
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Until input costs and selling prices reach more
of a state of equilibrium, carving out a marketing
margin will be a challenge, so the best offense could be having a strong defense and taking steps to guard against possible
losses. Since we have now entered the annual season of market volatility, Target Contracts, Forward Contracts and
Minimum Price Contracts will be the tools of choice.
Corn
Soybeans
Wheat
Source: USDA
We have great confidence in the North American farmers’ ingenuity and resourcefulness as you adapt to the current
economic environment. Please consider us as your partner as we work together to bring success to our rural communities.