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Looking ahead to 2011
It's a time-honored tradition in publishing: During the slow news cycle near the year's end, we look back at the year that was and make fearless predictions about the new one. After talking to trusted advisors and sources, here are mine.
I'd rather not look back. Who wants to dwell on flooding in the western Corn Belt, soybean sudden death syndrome, drought in the East, or tax uncertainty? Better to remember that financially, 2010 was good for most of us after harvesting a record soybean crop and the third biggest corn crop -- for a market hungry for every bushel.
Looking ahead, if there's anything we can count on in at least the first half of 2011, it's more volatility in the markets. That's a fancy way of saying end users are nervous about tight grain stocks when no one really knows where markets are headed in an uncertain global economy. We do know that ending stocks of U.S. corn will be the lowest in five years by the next harvest. Global corn stocks are the lowest in four.
You already know that costs are heating up. Yet, with potential revenue of $1,000 an acre or more on corn, you know that landlords and suppliers will want a bigger cut if the trend to higher prices holds. Obviously, now is the time to nail down every cost you can and to lock in a margin on your crop when the market offers it. For those in livestock, I've written about USDA's tweaks to the Dairy Gross Margin insurance that make it more user friendly (i.e. not paying in advance, more flexible feed cost choices, etc.). Insiders expect USDA to improve margin insurance on hogs and beef soon.
Exports should continue to bring good news to the markets. Even though USDA cut its corn export forecast slightly in November, its forecast for fiscal 2011 (starting last October) is a record $126.5 billion for all farm commodities. "The trend is still very positive for exports," says Iowa State University economist Chad Hart, who believes USDA has been too conservative in its export forecasts. Our recent trade agreement with South Korea may help break the logjam in Congress on several free trade agreements.
Here's another positive development for the nation's fruit and vegetable farmers: nearly $1 billion in new demand thanks to the 2008 Farm Bill, child nutrition legislation and changes in USDA rules for food assistance to women, infants and children, says Gus Schumacher, a former World Bank economist who headed USDA's Farm and Foreign Agricultural Services in the 1990s. Most of that buying will be at supermarkets supplied by growers in California, Florida and other produce powerhouses. But Schumacher also expects increased purchases at farmers markets around the nation.
Now for the cloudy days ahead.
You can count on the ethanol industry being under siege again in 2011, even if Congress rescued its tax credit in the lame duck session (undecided when this went to press). The next step by opponents will be to attack blending mandates, citing the uncertainty about supples of cellulosic ethanol and bringing up the largely discredited food vs. fuel argument against corn ethanol.
"We have to be very cognizant that the renewable fuel standard will be under attack," says Brian Jennings, executive vice president of the American Coalition for Ethanol. He doubts the RFS will be changed, however. Most Washington watchers expect Congress to be almost deadlocked until June.
Cap and Trade legislation is dead but the EPA will try to regulate greenhouse gases under its authority from a 2007 Supreme Court ruling. The House will hold hearings to blast EPA.
Finally, all forecasts are good for maybe six months. Then, weather is king. Drought would make current volatility look tame. It would be disaster for corn's end users.
Illustration: Copyright Roy Mattappallil Thomas of Dreamstime.com.