Van Trump on market trading, ag tech and more
If there's one thing agricultural producers can consistently count on, it's the inconsistency and volatility of the markets and weather and other unpredictable factors that make grain and livestock production both challenging and rewarding.
In mid-February, First Dakota National Bank hosted a series of meetings across eastern South Dakota featuring keynote speaker Kevin Van Trump from "The Van Trump Report." He offered his insights and analysis of current agricultural market factors and how producers can best prepare for the ups and downs that may occur throughout 2018.
With 20 years of experience trading professionally at the Chicago Mercantile Exchange, Chicago Board of Trade and Kansas City Board of Trade exchanges, Van Trump explained the moving parts of today's market to producers in Yankton, Mitchell and Pierre, S.D.
"We grew up being taught the fundamentals of traditional trading, but today, we're seeing extremes," said Van Trump. "What's crazy about the world of trading today is half of all stocks in the world are held for less than a second. People are trading based off tweets, wild card leaders and knee-jerk reactions. Nothing trades fundamentally like it used to, so don't beat yourself up if as a producer you can't figure out what your grain markets are going to do. Even the experts don't know where things are going either. Don't think you're going to outsmart the traders; you're just going to have to out-execute them."
This seems like a monumental task, given that producers rely on receiving the highest commodity prices to stay in business, support their families and make a living. However, Van Trump said if there's one thing he'll always bet on, it's agriculture.
"People need to eat, and they need to drink," he said. "That's why agriculture is in the right space. You're seeing some of the biggest money players in the world get into agriculture, so it's just a matter if you can navigate and outmaneuver against them."
What do producers need to understand in order to outguess the experts? Van Trump said advancements in agricultural technology will significantly change the future and impact the markets.
"With advancements in technology, everything gets cheaper; just look at what's happened with computers and cell phones," said Van Trump. "In the agricultural space, there is so much technology. There is a massive execution risk for those who are slow to adapt to this technology, but the challenge is how can smaller producers use some of the latest technologies and afford it? To make it cash flow, producers need to build the operation to scale to be able to outproduce the low prices. For the little guy, he'll just have to hope things are paid for and figure out how to make it work out."
Van Trump said while it's great the producers have become so efficient, they have still lost their competitive edge.
"We produce commodities, and everyone produces No. 2 corn today," said Van Trump. "When you commoditize yourself, you have no intellectual premium. When the market deems that it's oversupplied, it inflicts the most pain on the highest cost producers. The world is now looking at the U.S. as the highest cost producers. We've given away our technological edge, and production is exploding globally. So producers need to ask themselves, can I scale to size so I can afford the latest technologies, or how can I de-commoditize my farm, so I can have a competitive edge and earn a premium on my products?" This warning, along with the currently sluggish agricultural economy, could have producers changing tactics and thinking outside the box. There could be opportunities to pounce on as online retailers work to close the gap between consumers and producers.
"We'll soon see more integrators contracting with farmers directly," said Van Trump. "These companies want to be as close to the consumer as possible, so outlets like Amazon, Whole Foods and Kroger will be working very closely to farmers."
In his presentation, Van Trump painted an interesting picture for the future of agriculture, and those who are quick to adapt will succeed, and those are are high cost producers may soon be in big financial trouble.