There is something about farm machinery that many farmers find particularly intoxicating. I don’t count myself as one of that group, but I did have a sojourn for several years reviewing farm equipment for a large Canadian agricultural magazine. During that time I learned a lot about many different details about tractors, combines and assorted other pieces of machinery. So when I make my way back to the Louisville Farm show, it takes me back a bit.
I used to really enjoy reviewing combines. I think I felt this way because I’ve driven combines all my life and they have always been a challenge to keep going. There are always so many moving parts that invariably something will go wrong. So when I visit the Louisville show and I see all these new shiny combines, I still take a second look. There is something about increasing combine capacity, I’ve always found intriguing.
Harvesting 5000 bushels corn in one hour would be a challenge for me. My combine simply does not have that capacity or do I have the capacity to get the grain away from the combine. However, last week when I was in Louisville, I overheard a salesman say this particular yellow and black combine could thrash 5000 bushels of corn per hour. I must say that I was aware of that, but hearing it again impressed the heck out of me. The vicious cycle of efficiency continues.
At about the same time one of the national sales managers for one of the large tractor companies told me it be a lot easier to sell these tractors if we could get the price of corn higher. I then went into a longer discussion with him about how farmers could afford to pay for these tractors. The discussion morphed into a discussion about leasing and about building equity by leasing. You can imagine that my agricultural economist hair was standing up on the back of my neck. This building equity thing thru leasing I’ll never get.
Just in time, we have some Argentine corn in trouble. The dry weather in Argentina is having a bigger effect on the price of soybeans but it is rubbing off on the price of corn. 57% of Argentina corn is poor or very poor according to the Buenos Aires Grain Exchange. Slowly, December 2018 corn is inching toward $4.00. Of course, get that price about $.50 higher in those tractors will be flying off the lot.
Interestingly enough, it does work that way. In the era of the super-low interest rates, carrying costs can be the litmus test for moving this machinery. Any increase in the price of corn combined with its annual productivity increases puts those tractor-purchasing decisions on the front burner.
One highlight of any Louisville trip for me are the DTN seminars with my DTN colleagues Darin Newsom and Bryce Anderson. Bryce outlined his take on 2018 crop weather with a really excellent discourse on the current Argentinian problems. Darin took over from there and said among other things, that in 2018 it is about the weather. In fact, at one point he equated trading grains with trading weather derivatives. Trading these Argentinian headlines is surely working for the moment.
Trading the headlines is so interesting for my agricultural economist mind. I have bought into it over the years because I’ve seen it work in the market many times. Computer algorithms or noncommercial interests get caught up in the hot mess of headlines typical of many drought situations in summer. Not only is the corn not doing well in Argentina but as of last Wednesday 56% of Argentinian soybeans were looking poor to very poor. It has put a bit of testosterone into the soybean market and maybe a little bit more into the soybean meal market. Traders are measuring to see how much soybean meal Argentina will be able to ship.
This is all happening with the February USDA in the rearview mirror with a projected soybean ending stocks of 530 million bushels. It’s also happening at a time when traders will begin to consider into March whether the United States will grow more soybeans next year than corn? Further to that, it is happening at a time when Brazil soybeans have had adequate rain, in fact too much rain at times on their way to what looks like a 112 MMT soybean crop. So trading headlines might not be as crystal clear as first thought. There is still a lot of relative bearishness in the soybean complex.
It is what it is, but how about those tractor and combine sales? Will crop prices rise enough to make the Louisville Farm show an even more enticing place to go next year? Can I order that brand-new sleek black and yellow combine? The answer of course is complicated, but in 2018 more so than ever, as Darin alluded to, it’s all about the weather.