I often use the word “guess” in place of “estimate” or “forecast” when talking about markets and economic projections.
It might sound a little disrespectful, but I think that word is often just as accurate as the others, and it’s a good reminder that we’re allowing or forcing analysts to make a pile of assumptions about an incredibly complicated set of interconnected systems, not all of which work in synch.
The “guess” element of agricultural commodity forecasting is bigger now than at any time I’ve seen in two-and-a-half decades of doing this job.
It isn’t just coronavirus. African swine fever is just a dirty boot away from infecting North America. The world was already stumbling into a recession before this. World trade is getting messy due to growing protectionism.
As Glenn Hallick of MarketsFarm told me when I interviewed him for the Between the Rows podcast of April 3, “this COVID-19 pandemic is throwing everything into flux. We don’t know when it’s going to be over.”
So, what will consumer demand be in November? That’s just a guess.
How much will production of pigs and crops be affected by COVID-19 impacts on workers and workplaces?
All anyone trying to calculate supply and demand for the future can do right now is offer educated guesses.
That’s what the futures markets do all the time anyway, and that hasn’t changed. Futures prices are the prices buyers, sellers and speculators have agreed to trade commodities at, so they’re based on well-informed guessers who are willing to put money on the line. They’re bets with real stakes.
Hedging doesn’t change this. It’s the price level at which one is willing to take out insurance, either by paying a premium or locking in a price that eliminates possible gains.
But they don’t have any magic knowledge of what’s going to happen in the future. Those futures prices aren’t anything more than today’s aggregate guess.
Supply and demand will be affected by this COVID-19 situation. By how much and to what degree does that affect prices?
Right now it’s just a guess.