2020 market outlook? 'Relatively optimistic, but cautious'

posted on Wednesday, February 12, 2020 in Current News

Michigan Ag Commodities Outlook Conference

From Michigan Farm News

The wild-wild-west days of booming commodity markets are over, warned Mike Mock during the Feb. 6 Michigan Ag Commodities (MAC) Outlook Conference.

And for those still suffering a hangover from that bygone era (2007 to 2013), during the last seven- to eight-year downturn, don’t expect a miracle turnaround, Mock said. “Those days are gone.”

Instead, Mock, owner of M Mock Consulting LLC, based out of Swanton, Ohio, stressed that producers need to be aware of and ready to market crops on short-lived and much more modest market rallies.

“I want to be relatively optimistic but also cautious — I think that's the kind of environment we're in,” Mock said. “The real issue is to pay attention. I don't think you can just grow it anymore and expect a good price at harvest on a regular basis — you have got to be more proactive than that.”

“I do think we'll occasionally have rallies that are typically either weather-related somewhere in the world or some sort of a political development. For example, the Chinese phase one trade agreement that may give us opportunities to sell,” Mock said.

“But as opposed to a spectacular rally that elevated prices in that 2007 to 2013 period, I look for something a little more contained.”

Mock suggested producers look beyond the daily Chicago Board of Trade to identify trends that directly or indirectly impact the general farm economy, such as crude oil pricing, as leading indicators of longer-term pricing opportunities.

While the general economic outlook is positive, with very muted inflation, relatively cheap interest rates, low energy costs and a strong dollar, Mock told producers the ag economy generally runs in the opposite direction, as was the case in 2007-2013 period.

“The dollar was quite weak in that period,” Mock said. “The stock market was struggling, and we tend to do well opposite of those. During the 2008-2009 severe recession, farmers actually were doing quite well. That's clearly not the case today — the U.S. economy is in good shape and agriculture is kind of on the back burner until the next story.”

Soybean outlook?

For soybean growers, that next story might be some indication that the Coronavirus, viewed as an impediment to China pulling the trigger on Phase One trade purchase commitments, is finally resolved, said Mock, adding that he expects the outbreak to dissipate with the return to warmer weather.

“If we can get to March or April, if the numbers start to get better, if China steps in and starts to buy more of our products and/or you get some sort of a weather-problem, we want to make sure on modest rallies that we respond by taking some protection in the marketplace,” Mock added.

For farmers currently sitting on old-crop soybean inventory, Mock stressed there’s a lesson to be learned on why it’s important to consider multi-year pricing opportunities, suggesting many soybean producers missed “some really good opportunities.”

“I know it was very difficult in the eastern belt, including Michigan, to step up and sell the 2019 crop, but at the summer highs for 2019 we had some really good opportunities to sell the 2020 crop as well,” Mock said. “So, sometimes you have to be observant of not only what's going on today, but the opportunities that may present themselves for a year or a year and a half down the road.”

Acknowledging that both old and new soybeans look relatively cheap, Mock said he’s not anxious to do anything in the bean market — currently — even advising producers to be patient.

“I would say that's particularly true in the new crop,” Mock said. “As far as old crop soybeans, if we get into a situation where this (Coronavirus) lags or drags itself up into the spring or early summer we may see growers that have to go to a different kind of program.”

Worst-case scenario, Mock said producers may have to resort to metering out old crop soybean sales and sell the calendar as much as the price. “Of all the markets, I would say that probably applies to old crop beans the most. If China steps in and buys beans at a pace they used to from the U.S., we’ll get some sort of rebound.”

Corn outlook?

Short-term, Mock said the year-around availability of E-15 is starting to have an impact on domestic corn consumption, adding that the most recent weekly ethanol industry reports offered a rare combination where ethanol stocks went down even as ethanol production went up.

“Minnesota, in particular, showed a healthy jump in E-15,” he said, crediting an existing gas station infrastructure to support increased sales.

While that trend is certainly good news, Mock said it’s only a band-aid to the bigger question of ethanol’s future. Referencing the equity market’s “perceived value,” he said the contrasting trends of Tesla stock compared to Exxon Mobil Corp. stock (see charts below) leaves little doubt.

“The concern I have is that the long-term viability — the 5-year, 10-year, 15-year outlook for ethanol — is a little more in question depending on how rapidly we go to electric vehicles,” Mock added, noting the internal combustion engine is “on its way out over time.”

“And it's not just Tesla, which has obviously performed quite well, but you're going to see GM and European manufacturers also go this direction, so that's just something we have to recognize is out there,” Mock said.

As a longtime shareholder of Exxon stock, Mock said he’s down-sized his investments, noting the long-term decline in crude oil prices and the corresponding decline in Exxon stock values.

“We're currently the only country that's fracking. What happens if the rest of the world goes to fracking natural gas?” Mock asked. “Natural gas is at a 10-year low and they're flaring it off because there's no place to put it so we've got ample natural gas.”

Wheat outlook?

The wheat market, according to Mock, is the poster child of why producers need to take a multi-year approach to marketing, noting the recent rally in wheat makes right now, a good time to begin selling.

“Wheat has rallied basically a dollar from the lows around Labor Day to where we were just a few weeks ago,” Mock said. “We think that's an opportunity for growers to sell not only in 2020, we could even start nibbling at the 2021 crop as well.”

While Mock predicts the worst of the 8-year bust cycle is behind producers, he advises producers to be willing to accept more moderate pricing opportunities and to look for opportunities to diversify their operation’s enterprises.

“We still have more and more human beings being born every year; we still have to feed the world as the global economy stabilizes and improves particularly in third-world or emerging markets where there's a greater demand for protein, which is all good,” Mock concluded.