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More ag uncertainty than ever?

DANIEL LOOKER Updated: 11/15/2011 @ 10:24am Business Editor

The experts assembled at a recent ag outlook meeting could hardly be described as pessimistic.

Cattle feeders and hog finishers can at least lock in a break even margin months ahead, according to Extension Livestock Economist Shane Ellis.

And, with USDA’s November supply and demand estimate showing ending corn stocks from this year’s crop at only 843 million bushels (about half as much as in 2008), grain markets specialist Chad Hart isn’t exactly bearish, either.

The total supply of corn this year, with a crop of 12.3 billion bushels and beginning stocks, is 13.45 billion bushels.

“If we’d seen that number five years ago, we would have expected prices below $2 (a bushel). Thank God demand is strong,” Hart says.

Demand is strong for corn, but there are signs it’s leveling out, too.  For example, USDA projects the ethanol industry, the largest user of corn, to distill 5 billion bushels of corn this year.

“That’s what I expect to see in 2012 as well,” Hart says. “When was the last time you saw a new ethanol plant?”

The industry has hit the so-called blend wall of 10% ethanol in gasoline and it’s not growing.

Corn exports seem toppy as well. Asian buyers jumped into the market when U.S. prices dipped in September, he said, but they seem to be looking at our nation as the Wal-Mart of corn. And unlike last year, most other major corn producers had bigger crops this year, with corn production down over last year only in the U.S., Mexico and Canada. Cheaper feed wheat is replacing corn in markets such as Egypt.

If you want to be bullish, the markets are still nervous about the possibility of the drought in the southern Plains continuing next year and possibly expanding into the Midwest.

The crop reporting districts in Iowa are 3 inches to 9 inches short of soil moisture after a dry fall.

Long term field trials in Iowa show that when soil moisture is short in the fall,  the next year’s corn yields are below trendline 70% of the time, Hart says.

All this suggests that farmers face even more volatility and risk coming off of a year of record income in 2011.

Farm Management Specialist Steve Johnson recommends 5 tools to use for dealing with that risk.

  • replacing assets that improve efficiency, a more efficient tractor for example.
  • reducing debt and maintaining adequate working capital
  • knowing your production costs and responding with goals for a margin over those costs. “Most businesses operate on margin management,” he said.
  • use a variety of risk management tools, including flex cash leases, futures and options.
  • combine the purchase of revenue protection insurance to allow you to sell more of your crop earlier if prices are attractive.

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