Navigating current commodity markets requires a plan using all the risk management tools available

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The values of some of the current commodities may be at numbers we’ve never seen before; however, the trends are not new.

Brian Voth of IntelliFarm joined RealAg Radio to discuss some of the current trends in the markets, and how producers can navigate through them.

“The patterns we’re seeing, they’ve shown up in history numerous times. And looking back, even in recent history, to years like 2008, 2011, 2013, each of those years, when you look at historical price charts, we went into spring at what would have been historically high values,” he explains.

The thing to keep in mind, says Voth, is the whole function of prices — particularly as it relates to agriculture commodities — and that’s to ration demand or build supply.

“In a free-functioning market, high prices are going to encourage production and discourage demand. That will flip balance sheets around from being tight to being abundant. Similarly, low prices are supposed to discourage production and encourage demand,” he says.

But, as Voth explains, issues can arise when producers become complacent in thinking that these commodity prices are the new normal, and neglect to develop or follow a marketing plan, missing out on pricing opportunities.

It’s very understandable that some farmers are leery about forward pricing right now, either because of a lack of production, lingering drought concerns, or because of fallout from dealing with buying out contracts last year. However, there are other tools to manage risk, he says. “You may just have to think outside the box a little bit from what your normal marketing plan is,” Voth says.

“It comes down to having a plan. And that’s the first thing that needs to be done. Make this plan, have an idea of what you want to do. I understand it could change — and it probably will change — but you still have to have a base to work off of.”

When developing a marketing plan, Voth also highlights the importance of remembering the high prices may be around for awhile, but when those low prices do come — and they will — the probability of them lasting even longer is quite significant.

Check out the full conversation between Voth and RealAgriculture’s Kara Oosterhuis, below:

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