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It's all relative

Agriculture.com Staff 01/23/2009 @ 2:02pm

For the last couple of months, we have heard farmers say that corn prices have to rally in order to buy enough acres for 2009. History tells us nothing has to happen in a market. Corn prices may only need to rally and compete with soybeans for acres if the market truly believes supply is too tight or if soybean prices rally. It's all relative.

What do we mean by relative? Even though corn prices may be below the cost of production, that doesn't imply that corn prices will move higher. In 2008, there was a battle between corn and bean acres simply because of the economics that both commodities were rallying. With the corn price near $4.25 on December futures and new crop soybeans priced near $9.50, this ratio equals 2.23 soybeans to corn. In our estimation, in order for beans to really attract acres from corn, the ratio will likely have to be closer to 2.5 or higher. The bottom line is that, unless there is a real economic advantage to pricing beans over corn, there is not necessarily a reason for corn price to rally.

From our observation after talking to a number of farmers in recent weeks, they are still uncertain what they will plant. The market may dictate decisions over the next few months through price movement. Some may plant more of one crop, anticipating a switch to more of the other crop, hoping to find a competitive advantage using a contrarian view. This could be a gamble, or it may pay big dividends; who knows? Only time will tell. As of this writing, we sense most farmers are leaning toward more of a 50/50 rotation. In recent years, farmers have probably pushed more toward corn based on crop reliability and perceived long-term growth from the demand sector, especially with the advent of ethanol. The ethanol picture has changed in the last 6 months.

In summary, unless there is a clear economic incentive of one crop price over another, the idea that corn prices have to rally in the near future is not necessarily true.

If you have questions or comments, contact Top Farmer, 1-800-TOP-FARM ext. 129, ask for Bryan Doherty.

For the last couple of months, we have heard farmers say that corn prices have to rally in order to buy enough acres for 2009. History tells us nothing has to happen in a market. Corn prices may only need to rally and compete with soybeans for acres if the market truly believes supply is too tight or if soybean prices rally. It's all relative.

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