Across the Editor's Desk: April 2008
Journalists possess a high curiosity and a compelling desire to learn by asking lots of questions. Then we can't wait to quickly put what we've learned into print, online, or on-air so that our audiences can know what we know.
I've never been quite as comfortable answering questions as asking them. Hey, I'm the journalist here after all! Still, your questions provide insight into what is on your mind and important in your life. That makes it important to me, too.
Here are the two questions I've been asked most often over the winter months.
My flippant answer: I don't know. And furthermore, nobody does!
However, I'll quickly pass along the analysis of Contributing Editor Alan Kluis of Kluis Commodities. Because of high demand and competition for acres of wheat, corn, and soybeans, he sees crop values remaining strong over the next three years.
How strong? Wheat should spend considerable time above $5.50, corn above $4.50, and beans above $10. There will be excellent opportunities to sell at prices considerably higher than those numbers over the next three years, Kluis believes.
While it appears to make business sense to lock in good prices on part of your expected production for 2009 and 2010, Kluis urges caution. Unless you can secure an acceptable margin by locking in production costs (including land rents) at the same time, move slowly.
My answer: Gouging is a pretty strong word, but paying significantly higher costs is strong pain, too.
In a recent Agriculture Online poll, nearly 60% of respondents believe the run-up in input costs is price gouging; 20% say it is understandable; 4% says it's fair; 13% say there ought to be a law against it.
I believe what is happening with inputs is pretty much the way the marketplace should be expected to behave. Nitrogen fertilizer and petroleum, just like corn, are considerably higher because of high demand and tight supplies.
Demand is also strong from farmers for new varieties and hybrids with highly desired traits. You vote with your checkbook and companies respond. That shouldn't be surprising. As more of you vote no on nitrogen and switch acres to soybeans this year, the marketplace responds to those shifts, too.
Of course, if you can't beat 'em, join 'em! Buy their stock. Let their profits pass back to you as a stockholder. While it is prudent to maintain a diverse portfolio, investing a portion in ag companies is reasonable.
Since mid-August of 2006, corn futures increased 163% to their highs of recent months. Soybeans rose 188%, and wheat jumped 263%. In the same period, Monsanto stock increased 193%, Deere went up 195%, and Terra Industries (producer/marketer of nitrogen products) soared 746%.
By mid-March, both grain futures and ag stocks were trading below their highs made in late 2007 or early 2008. Will they make new highs this summer? I don't know!