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Ray Grabanski: Inflation, or supply/demand?

Agriculture.com Staff 07/30/2009 @ 8:00am

Grains seem locked in a duel between the expectation for inflation (new price levels) vs. the supply/demand factors (grains could go back to old price ranges of $2-3 corn, $3-$5 wheat, and $5-10 soybeans). This debate is going on emphatically in grain markets as supply/demand levels of grains appear to be recovering to more comfortable levels in 2009 after some difficulties prior to this time. Are we on new price plateaus for crops, or will we drop back into our old price ranges?

Prices already have retreated considerably from 2008 highs, and on charts the key question is whether we return to the old price range (which seems to be suggested by technicals). But can technicals be relied upon? Costs of producing seem to have gone up exponentially as well, leaving farmers strapped if prices were to retreat back to $2 corn. Heck, $3.50 corn is even somewhat of a difficult go of it!

While charts point to still lower price levels, the market recently has been reluctant to go there yet in spite of growing ideas the US crop is going to be a bin buster, potential record shattering yield in HRS wheat, corn, and soybeans. Yet, prices still are hanging onto the recent price ranges for grains. Old crop soybeans have been especially stubborn, refusing to drop in spite of very good growing season weather. Are we just waiting for old crop soybeans to have their day in the sun?

The acre decision might be different for predominately small grain producers vs. corn/soybean producers, and also different for ND and MN producers. Why?

First lets look at ND producers. ND producers are only 9% silking vs. 16% last year and 47% average, so we are well behind normal development. Crop ratings for corn are 71% G/E, but that may not even matter as crop development is well behind normal. ND corn producers are likely to lose significant yield due to frost this fall (northern 1/3???), while prevent plant has already cost many Valley producers about 10% of their total acreage - most of which will be PP corn acres. Early indications are PP is considered in the calculation for the actual farm revenue for the current year, so it has an impact only on the farm trigger, not the state trigger revenue. If 25% of total ND corn acreage was PP'd in 2009, then it still is not figured into the loss calculation/state trigger reveneu. So for ND corn producers, the risk management protection against frost insurance is huge, especially if we are already "In the money" for both price and yield insurance (yield with PP acres). Decision: ND corn producers should sign up for ACRE unless your own farm will have an extraordinary yield, and make up for lost price revenue.

For MN corn producers, the MN crop is rated extraordinarily high at 75% good/excellent, so its likely that MN producers will not have a yield loss on corn. Most MN corn was also planted relatively early (especially central and southern MN), with 45% silking vs. only 30% last year and 72% normal for this time. So MN is ahead of last year's development, while ND is behind. Its unlikely MN producers will suffer a yield loss in 2009, and thus no trigger for claims. To sign up for ACRE in MN might mean losing this year's payment, when you might as well collect 100% this year if ACRE will not pay in 2009. Decision: MN producers can wait until 2010 to sign up for ACRE.

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