Your profit

Agriculture.com Staff 12/05/2008 @ 2:23pm

The meltdown on Wall Street in the first two weeks of October dropped the price of the U.S. stock markets about 22% and destroyed over $10 trillion dollars of wealth.

This hard fall in the equity markets carried over into the commodity markets, with corn futures dropping by 24% and U.S. soybean futures falling by 25% in the first two weeks.

The corn chart shows the value of the U.S. corn crop dropping by over $16 billion; the soybean chart shows the soybean crop dropping in value by over $9 billion.

The drop in the equity and commodity markets has been larger and more dramatic than I had anticipated, and it will reduce farm income and profits in 2008-2009. In this article, I will explain some of the short-term and long-term changes that you may want to consider when you factor in the new global fundamentals that we are facing.

What short-term changes should you consider to try to increase profits and lower your financial risk? First of all, do not panic. The hard down move in the stock and commodity markets has created a near-record level of anxiety among some farmers who have made good financial decisions and are having a very profitable year. One customer had differed his income all the way till 2010 and was now worried about the grain elevator and banks he was dealing with!

I have told several customers to stop worrying about the Wall Street problem, to shut down their computers, and to stop reading all of the negative news that is being written each day as prices move lower.

Instead, focus on your situation, work on your budget, your cash flow projections for next year, and be willing to share that information with your landlords, lenders, and all of your farm partners.

If you need to generate cash in the next 30 to 90 days, be willing to use the government loan program or see if your elevator will allow you to move some grain on a basis contract.

If you are forced to sell, make sure you lock in the best basis possible and attempt to retain ownership with some May and July call options.

I would estimate that 90% of the farmers that I work with can hold off on any additional cash sales until the spring and summer of 2009. They can let the dust settle and focus on putting together an effective long-term plan.

The meltdown on Wall Street in the first two weeks of October dropped the price of the U.S. stock markets about 22% and destroyed over $10 trillion dollars of wealth.

Here are seven key factors that you should plug into your long-term marketing plan.

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