These days, volatility is becoming the norm rather than the exception when it comes to commodity prices.
“I mean, when you lose about a buck off the price of corn in two days - that used to be the price of corn, a buck, and we lost that in two days,” said Dr. Mike Boehlje, agricultural economist with Purdue’s Center for Food and Agricultural Business.
“We are seeing volatility at an unprecedented level in terms of fluctuations in prices of our products,” Boehlje noted. “But on top of that we see volatility that we’ve never experienced in the past in our costs. Put those two together and we have margin - the difference between price and costs - that is up 4-5 times in terms of its fluctuations.”
Dr. Boehlje told farmers at a recent corn strategies field day that they need to have a strategy to deal with this unprecedented volatility, and his main piece of advice is to determine their cost of production per bushel, not per acre. “That’s what you sell, you sell bushels,” he said. “Knowing your costs is a critical part of any successful business, whether it be manufacturing widgets, or automobiles, or corn.” He says farmers need to use that business practice to do a better job of managing margins in today’s turbulent times.
The U.S. Grains Council just held it’s International Marketing Conference and the keynote speaker was the Hon. Carole L. Brookins, Managing Director of Public Capital Advisors, LLC.
Her topic was “Growing Grain Markets in a (Sustainable) Brave New World.”
“We are moving into a new era of focus on global public goods, including money, trade, climate and environment. With that come global threats: cyber terrorism, fragmented political and economic power, radical groups seeking to control weapons of mass destruction and piracy on the high seas,” she said.
Brookins identified four trends shaping our world today. First – a re-balancing of global wealth and power. “There are shifts in global economic leadership, which creates a wider competition to maintain and grow market share,” said Brookins. Second – a revolution in energy supply and markets. According to Brookins, this is fueled by climate change, resource depletion, energy security and technological innovation. Third – a rebellion against the modern food system. “Activist groups attack the safety and value of the modern food production system,” she said. Fourth – a resurgence of investment in commodities and agriculture. According to Brookins, this will be stimulated through investments, control of the supply chain and economic power.
“Experience shows that sustainable global food security will depend on intensive, large scale agriculture and expanding global trade,” Brookins said. “Both your risks and reward will be multiplied. Your complexity of choices and competition will be magnified. The brand of the Council is highly respected around the world. Renew your mission in 2010 and lead out in a growing, dynamic world of 9 billion lives over the next 50 years. I look forward to watching.”