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Fool me once...shame on who?

The old saying goes "Fool me once, shame on you. Fool me twice, shame on
me!". This is very fitting for marketers today (who have already missed the
wheat sale boat), and for those policymakers in the ag community who are
dealing with CRP issues today.

First of all, on the market side this week we have seen the first evidence
of
a top in corn/bean markets (the wheat ship sailed in February!), with
soybeans dropping $1.50 in 48 hours and corn dropping $.75. We have
recovered from the worst losses so far this week, but it certainly opens up
a
whole new realm of possibilities in a marketplace that the past 22 months
only included "up" in the list of possibilities. If we can drop $1.50
soybeans and .75 corn in just 2 days, can we drop $5 soybeans and $3 corn by
harvest? After all, there is at least 40 days of trading in soybeans
until
harvest, and 60-80 days of trading for corn into harvest. We'd need to
average a 10c loss in soybeans/day and only a 5c loss in corn to make these
potential lows of $4.5-$5 corn and $10 soybeans this fall.

While these numbers seem shockingly low compared to current $7-$7.50 corn
and
$15-$16 soybeans, these are still profitable levels for production of both
in
the US this year - even with a sharp hike in production input costs.

Now
there is a reason prices hit $8 corn and $16.50 soybeans - the grain S/D is
remarkably bullish (and even more so by policy decisions thus far - but that
is the second part of this week's column). Pro Ag is NOT in the camp of
those who think prices will return to $2 corn and $5 soybeans - instead we
think corn will trade $4-$7 and soybeans $10-$15
the next 2-5 years. This will leave agriculture VERY profitable the next
2-5
years, but the difference between profitability at $7 corn vs. $4 corn is a
huge difference! Pro Ag would prefer to be on the high end of these sales
levels - therefore our aggressive sales campaign lately since we got above
$6
corn and $15 soybeans. These have been our multi-year (and even multi-
decade) price targets since this rally began, and its time to now lock in at
least some of these levels while we can. (NOTE: 2008 was there, but also
2009 and 2010 new crop the past few weeks. Add 2011 soybeans recently at
the
$14.50-15 level!).

All this at a time when most buyers won't give you a bid beyond 6 months.
There is a reason buyers are willing to pay that much 3 years out, and its
because they find no willing sellers anymore. That's the perfect time to do
what my wise father called "walking when everyone ran, and running when
everyone walked". Pro Ag thinks its time to lock up these multi-year hedges
at ungodly profitability levels - and let the cards fall where they may. If
we have capital to hold these hedges (and any bank should provide it), we
can't see what could derail us as we don't even need a viable (read this as
non-bankrupt grain buyer) outlet for this grain as we are doing our OWN
hedging now. And the beauty of that is IF corn drops $3 and soybeans $5 the
next 2-4 months, we can remove these hedges and use all that capital from
our
hedges (note this is the opposite situation of margin calls!!!) the next few
years instead of letting our buyers have it all. Which reminds me of
another
of my father's wise sayings: "When the cookie plate comes around in
business,
don't be afraid to take two!"

The second part of this week's commentary regards CRP policymakers AND their
interaction with farmers/farm groups. The conservation groups have long had
a tradition of 'fooling' farmers, first in wildlife programs in the
60's/early 70's that created lots of suspicion among farmers for wildlife
groups. In farm country it didn't matter what government conservation
programs offered then - farmers knew they'd 'screw you one way or another'
if
you signed those contracts (in ND Fish and Wildlife had another name
farmer's
used that isn't printable here).

Well here they go again (fool me twice???)! This week the National Wildlife
Federation found a judge who halted CRP grazing/haying because they didn't
feel USDA followed conservation rules in this program. Also 15 wildlife
groups (including the National Wildlife Federation, the Sierra Club,
Environmental Working Group, National Audobon Society, and Environmental
Defense Fund) released a press release saying early release of CRP "..would
result in billions of dollars of taxpayer investment in conservation on
these
lands" to be lost. Current rules require repaying ALL payments over the 10+
year contract, PLUS interest, PLUS 25% penalty for early release of CRP.

Thats kind of like saying if you rent a house for 5 years and move out 1
month early, you should pay a penalty equal to the 4 years, 11 months rent
PLUS interest PLUS 25% more. That's atrocious!!! The only loss to the
owner
is one month rent, not the ridiculous assessment of penalties like USDA has
on current CRP contract holders. How did these rules ever get into this
program in the first place??? To say that 'billions of dollars in taxpayer
investment in conversation' would be lost is a Washington lobbyist statement
(a twist of words for your benefit), not a fact. Instead, a more accurate
description is that billions of dollars of unreasonable penalties heaped on
farmers would not be exacted. Policymakers should learn that they should
never, never, ever include such ridiculous penalties again, as the national
interests are obviously not being served by these penalties. We need these
acres in grain production, and we need the fuel that ethanol/biodiesel
provide!

Pro Ag estimates that economics would encourage about 2/3 of the current CRP
out of CRP as the wildlife value ($1-$5 acre???) isn't anywhere near the
farming value ($100-$400/acre???). USDA needs to start taking a economic
viewpoint on these CRP issues, not a political viewpoint! God entrusted man
to be good stewards of his resources, and farmers are typically some of the
best stewards ever on this planet! Now USDA needs to do the right thing and
provide our society with the best value use for our CRP lands. "Fool me
once, shame on you. Fool me twice, shame on me!"

Farm groups AND now USDA
policymakers need to keep this in mind from now on in dealing with these
environmental groups!

The old saying goes "Fool me once, shame on you. Fool me twice, shame on me!". This is very fitting for marketers today (who have already missed the wheat sale boat), and for those policymakers in the ag community who are dealing with CRP issues today.

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