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The market faÃ§ade
It seems like decades ago that corn prices were $2.40 futures, $3 wheat, and $5
soybeans but actually that was only 2 years ago!
The $30 crude priice was kissed goodbye a
year earlier, and now it seems like the market is just a blurr going by, a
façade which we are trying to figure out is real or just an image that we didn't
completely have in focus. Fertilizer prices definitely feel like that, with
prices going to 300-400% of just a few year's ago prices. Fertilizer suppliers
seem to think their fantasyland of 50%+ price increases year after year are
going to be the norm now based on the way they want to charge for 2009 supplies.
It's like they haven't even noticed crude oil has dropped over 20% in the past
But fertilizer dealers/manufacturers will soon learn a lesson that wheat
producers (and recently crude oil/corn producers) also quickly learned - that
what goes up can come down! The façade of ever increasing prices has been
etched into everyone's minds during the past two-year rally. It's going to be
important for producers to forget about the past two years, and start focusing on
the next 2-5 years instead. What worked the past two years may be certain to fail
in the future.
Facts are that profit margins for corn/soybean/wheat farmers are as good as
they've ever been (much like fertilizer profit margins). Whenever there is a
lot of money in something, usually competition arrives and drives some of the
profit out of the marketplace. At Pro Ag, we are starting to wonder if we
should sell back our pre-bought fertilizer supplies at prices dealers want to
sell to us next year, essentially taking the profit and pocketing it. Then turn
around and lock in $6+ corn from 2008-2011! Clearly some serious money could be
made in agriculture the next few years!
Grain prices have rallied back up to where you can once again consider selling
corn, soybeans, and wheat again. Corn is still the darling child, bidding $5.70
Dec08 this morning, and $6+ futures for 2009, 2010, and 2011. It's probably time
to start locking in multiple year hedges as it's now likely the US could have a
record large 2008 crop. It's raining in all the right places in the Corn Belt
(western Corn Belt, HRW and HRS areas) and staying dry in all the other soggy
places (ILL, IND, IA, OH, MO, MI). Temps are moderate, allowing especially the
southern areas additional time to fill grain in what usually is an area that
burns up this time of year. Overall, weather remains favorable and we expect the
actual corn yield potential is closer to 158 than USDA's recent estimate of 155
(which many think is too high.).
Soybean yields are also likely to be much higher than forecast, especially
considering USDA's surprising drop in yield estimates this Tuesday (down 1.1 bu
from July's forecast). Pro Ag yield model estimates are over 3 bu above USDA
numbers, a scary thought considering we have only a few months for USDA to
revise it upward.
While the market façade seems almost too good to be true right now, that façade
($8 corn, $15+ wheat, $15 soybeans) is quickly fading into the sunset.
Hopefully your eyes will need to focus in on what's important and what's just a
façade. If you don't lock in $6+ corn on this second chance, who can you blame
but yourself for getting fooled by the recent market façade of unbridled bullish
The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be reliable. The
opinions and recommendations contained are based on our judgement and do not
guarantee profits will be achieved or that losses will not be incurred.
Recommendations should not be construed as an offer to buy or sell
commodities. There is substantial risk of loss in trading futures and
options on futures.
Ray Grabanski is President of Progressive Ag, a marketing and risk
management firm for farmers located in Fargo, ND. For questions or
comments, or if you are interested in more information about Progressive Ag's
common sense marketing services, call 1-800-450-1404 or email
It seems like decades ago that corn prices were $2.40 futures, $3 wheat, and $5 soybeans but actually that was only 2 years ago!