A tale of two times

Agriculture.com Staff 02/09/2016 @ 10:32pm

You always knew you were getting on a teacher's nerves when he or she said, "Well, someday you'll use this."

My high school English teacher said something like that when she was struggling to get her feisty freshmen through the Charles Dickens' novel, A Tale of Two Cities. Some caught on sooner, others later. Then there's me, for whom her logic took 33 years to sink in.

I thought of Mrs. Sanderson a couple months ago when I heard Gary Schnitkey, University of Illinois (U of I) Extension agricultural economist, talk. The title of his presentation could be paraphrased to A Tale of Two Financial Climates.

That's because 2008 can be split into two economic climates: premeltdown and postmeltdown. Prior to September, crop inputs continued to increase. Although crop prices had slumped from late-June highs, they were higher than now.

Then came September, when the subprime mess began to fully roil financial and commodity markets. Normally, farmers can glean discounts by buying inputs well in advance of the next crop production year.

This didn't apply in 2008. Here are Schnitkey's data that show Illinois price differences pre- and postmeltdown.

  • Premeltdown anhydrous ammonia prices hovered around $1,000 per ton; postmeltdown price projections revolved around $600 per ton.
  • Diammonium phosphate (18-46-0) fetched $1,000 per ton before mid-September; projections are around $800 post.
  • Potash costs premeltdown tallied roughly $900 a ton; $600 projections afterward.
  • Many triple-stack corn prices revolved around $275 per bag; prices slipped down to around $210 post-meltdown.

This trend could change. "If the world economy comes back, all commodities will be in short supply," says Schnitkey. For now, though, odds favor lower input costs.

All this points toward more 2009 corn acres. "Postmeltdown input costs are leading to corn being more profitable than soybeans," he says.

Margins will be tighter for those who priced inputs prior to the meltdown. "Most farmers face a blend of premeltdown costs and postmeltdown costs," says Schnitkey.

Any move toward undecided acres will also be influenced by price outlook. Trends earlier this winter found soybean prices rallying more than corn prices. Factors like the ethanol industry's slump and cuts in corn exports and corn feeding have hammered corn prices compared to 2008's premeltdown rise. "But the trend long term is still up," says Darrel Good, U of I Extension agricultural economist.

Good sees corn consumption rising from this market year's 12.1 billion bushels to 12.8 billion bushels in the coming year.

"That increase is probably larger than people are thinking," he says. "It comes from a significant rebound in corn exports as world wheat feeding goes back to more normal levels. If ethanol and biofuel mandates are binding, we will need to use another 500 million bushels for ethanol in the upcoming year."

At trend line yields of 155 bushels per acre, the number of planted acres needed to make this mark is 88.59 million acres, a 2.7 million-acre increase over 2009. (This accounts for the average difference between planted and harvested acres of 7.3 million acres.)

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