Why real-time market values trump balance sheet data – RealAgriculture
With the harvest well underway, and for some even over, markets remain sensitive to world events, but the focus is now on actual yield figures as the harvest unfolds.
Brian Voth, president of intetlliFARM, weighs in on the matter and says he is skeptical of the demand reflected in current balance sheets.
“There are a lot of products that have record or near-record demand estimates for this year. Yet historically when we’ve had other periods of high commodity prices, the year we come out of those highs, demand tends to go down, not up,” Voth says. “And just having record or near record prices and then expecting demand to increase goes against everything you could say about the economy. And so I’m a bit skeptical about that, especially given that the demand isn’t appearing in the market at the pace that we need to get to some of those levels.”
Previously, when it came to exports to China, the focus was on how much they would actually take. Voth goes one step further and says that aside from their actual needs, it’s important to realize that not all of these exports will come from the United States and that South America will likely be a strong competitor in this market. Therefore, even if their export numbers are high, the North American market might only see a small slice, or less than expected, of the pie.
In addition to soybeans, corn is another commodity that is attracting a lot of attention and, at first glance, the balance sheets are very tight.
“It’s tight when you write the request they’re using right now. But again, it’s kind of a fly in the face of the economy, high prices are designed to dampen demand, not encourage it. So I’m a bit skeptical,” says Voth.
Although balance sheets are a tool, they are only one source to look at when trying to determine where the market is going and Voth urges producers to pay more attention to actual market values on balance sheets because balance sheets are – or may be – adjusted on a monthly basis to better reflect yield and market news.
“There are people who are like, well, the balance sheets are really tight. So clearly the prices have to come back up. And I’m sitting here waiting, I’ll see in two, three, four or five months at Going forward, what changes are going to be made to those balance sheets that are actually going to justify where the prices are now,” says Voth. “The most important thing to keep in mind is that the market is trading in real time . So if it looks like things should be supported and prices should go up based on the balance sheet and prices go down instead, pay close attention to that stuff. Because at the end of the day, you’re probably going to see revisions to those balance sheets in the months to come.”
In the full interview below, RealAg Radio host Shaun Haney and Voth also explain why he’s less concerned about wheat and canola balance sheets and why he’s not surprised that growers who responded to our poll question say oats is the crop they will reduce acres next year.