Kub's Den

Double-digit up days in the markets are nice to see for everyone who has a long position, like a farmer with more crop yet to sell. On the soybean futures chart, these recent gains have been particularly significant because they have taken the market up out of the lackluster trading range of the past five months. Tuesday's high of $9.20 1/2 is the best we've seen since early March.

If we had to pinpoint the moment when we could say the global COVID-19 pandemic really started to affect the U.S., we might agree the NBA's March 11 decision to suspend their season was the single moment that made everyone sit up, take notice and start to anticipate all the ways their own plans would be affected. Let's call everything past March 11, 2020, the "post-COVID" era, and by that measure, the soybean prices we're seeing right now are the best that have been available in this era.

There are at least two clear causes for the recent rally: 1) Dry weather during the August soybean pod-filling season, with widespread drought, from moderate to extreme, spreading through the Western Corn Belt, especially Iowa; and 2) Several hefty new-crop export sales announcements and the potential for continued excellent soybean export prospects in coming months, as the U.S. becomes the main supplier of available soybeans to the world, and in particular China. See Todd's Take: What Is Happening in China? at https://www.dtnpf.com/….

A third bullish influence on recent trade may be the storm damage from the Aug. 11 derecho, but it's not clear how much new-crop soybean supplies may have been affected.

The post-COVID slide in the value of the U.S. dollar should also be acknowledged as a backup cause for the soybean rally. Extremely accommodative monetary policy has boosted asset prices across the board and shielded the markets from demonstrating the effects of the lockdown recession. As a result of the Fed's monetary easing, the U.S. Dollar Index has fallen 10% since its mid-March panic high. This has an upward influence on the prices of exportable commodities, like soybeans, which can carry a higher dollar-denominated price tag when each dollar is worth less on the international market. So even if old-crop soybeans weren't growing scarce in Brazil and global soybean prices weren't rising for that important reason, the soybean price tags here in the U.S. would likely be floating higher anyway.

We've seen a soybean rally of almost $1 per bushel off the lows. That makes it a great time to sell, right? Maybe so. New-crop cash soybean bids for October/November delivery are in the range of $8.40 per bushel at a central Iowa cooperative elevator (-80X basis) or $8.90 at a soybean processor or barge loading facility (-30X basis). For efficient producers with relatively low land costs, these may finally be profitable prices above the costs of production. However, the benchmark assumptions for an "average" Iowa soybean farmer in 2020 ($219 cash rent, 56 bushels per acre) still don't yet pencil out at the local elevator, with an implied cost of production at $8.72 per bushel, according to the "Estimated Costs of Crop Production in Iowa -- 2020" from Iowa State University Extension. Many producers, especially those who don't actually know what their cost of production is because they can't yet predict their final yield, may be stuck in a bit of a gray zone of uncertainty.

The biggest impediment to farmer marketing decisions, in my opinion, tends to be the Fear of Missing Out, or "FOMO" as the kids call it these days. In this case, it's not a fear of missing out on social status opportunities; it's a fear of missing out on better financial opportunities. The brain, being the treacherous organ it is, sees a $9 soybean price tag and doesn't interpret it as a good thing. We don't think "Yay! Profit!" but rather "Yeah, but ... what if it goes higher later and I feel stupid for selling at $9 when I could have sold at $9.50?" This is simultaneously wishful thinking (the potentially better price in the future) and catastrophic thinking (the supposedly bad feeling we'll get when we've missed out on that better price). FOMO could also be called the fear of regret.

We don't make good decisions when we're in a state of fear. When it becomes too severe -- an outright pathological state of anxiety -- FOMO can seriously affect emotional wellbeing and life satisfaction. It's a vicious cycle: We make a choice driven by FOMO, like compulsively checking social media to see how much better everyone else is doing, or compulsively checking the markets to see if the trend still looks like it's headed upward, and that action itself leads to more FOMO.

There are a few suggested cures for FOMO. Recognize that the fantastic alternative you're imagining is a lie. It's literally impossible not to miss out on something. Everything in life is a trade-off, and if you make one choice, you will necessarily have to forego the alternative choice. In the context of grain marketing, it's literally impossible to sell at the exact high of every market, every year. You will always miss, be it by 5 cents or 50 cents, so your success should not be measured by how close you get to that imaginary, unknown goal, but instead by something achievable, like discipline or profitability.

The cure specifically suggested for social media-driven FOMO (the kids who get distressed because they're not invited to every party they see their friends posting, etc.) is to schedule "screen-free" time. Avoid the thing that triggers the anxiety. For grain marketing, perhaps we could try something similar? Make marketing decisions away from the computer, away from charts, with the radio off. Maybe be standing by some grain bins, maybe be standing in a field. Whether that field is doing fine or it's legitimately dry, your marketing decision will likely be tied to the field's real production prospects, not to each moment's price fluctuations, nor to anxious thinking about what prices may or may not do.

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at masteringthegrainmarkets@gmail.com or on Twitter @elainekub

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