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Your Profit: 3 scenarios for prices in 2010

Agriculture.com Staff 04/06/2010 @ 10:59am

With the economic problems in Europe and the huge losses in the hog, beef, and dairy industries, can the grain markets stay profitable? Are you worried about inflation or deflation? How can you make the right decision with all of these mixed signals?

These were 3 questions that came up at a seminar in late February from a worried young farmer.

Regarding the first question, I've read a lot about the debt problem in Greece and the turmoil it has created for leaders in Europe. I cannot fully understand these complex problems and I do not have any solutions to offer. However, the U.S. economy has started to improve, and recently hog, beef, and dairy farmers have been able to put on some hedges to lock in positive returns for the next 3 to 6 months. The improvement in livestock profits is a big first positive step for the long-term price outlook for corn and soybeans.

Regarding the second question, I am very concerned with inflation (not deflation) and the impact it will have on farm input costs and farm profits in the next several years. A large part of my weekly Al Kluis report is dedicated to making input recommendations on when to buy fuel, fertilizer, feed corn, and soybean meal. This will be more challenging in the years ahead.

The projected ending stocks for corn are at 1.968 billion bushels, up about 150 million bushels from last year. If this develops, then odds would favor a lower high and lower low for 2010 corn than we had in 2009.

For soybeans, the projections show a large potential increase with ending stocks jumping to 269 million bushels. This would be 50 million bushels more than last year, which is a 28% increase from 2009. This, again, sets up the potential for lower prices this fall.

I mainly use price charts to make sales decision, but I stay aware of the long-term fundamentals when I decide how much of which commodity to grow and store. This year I want to make sure that the farmers I work with do not have to sell any corn or soybeans in the August-October time period.

With the economic problems in Europe and the huge losses in the hog, beef, and dairy industries, can the grain markets stay profitable? Are you worried about inflation or deflation? How can you make the right decision with all of these mixed signals?

Regarding the third question, it boils down to knowing how much of your new crop corn and soybeans you should sell ahead and when. I cannot offer one right answer for all, but I can provide guidelines of how much to sell and when.

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