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Crazy grain markets top list of big ag stories of '08

In a lot of ways, 2008 was truly one hell of a year.

First, Mother Nature weighed in, bringing one of the harshest winters in decades to parts of the Midwest. That winter unfurled into a wild spring and summer fraught with fieldwork-delaying moisture extremes and later, flooding of the likes people have never seen in parts of Iowa, Illinois and other states in the Corn Belt.

And if that wasn't enough, things were equally wild in the markets. 2008 saw record-high grain and crude oil prices, only to see them fall sharply as the calendar year drew closer to its end. It wasn't the only sector of the economy in turmoil, though, as terms like "subprime" and "bailout" became common parts of the lexicon.

The chaos in the grain trade and general economic malaise were the biggest stories of 2008, according to a recent Agriculture Online poll. Though the general economic turmoil is the greatest uncertainty moving forward for many in agriculture, the volatile grain markets took top billing among farmers responding to the poll. Forty percent ranked the markets as their "story of the year."

"Even the best of marketers had a challenging year in 2008, watching the market climb to record levels, then fall precipitously because of outside markets," says Stu Ellis with University of Illinois Extension. "Marketers who depend on reading the fundamentals threw their arms up in disbelief."

The markets story hasn't been all bad; some farmers were able to capitalize on high prices during the summer before they began to fall.

"We used to think (crop returns of) $350 to $400 was good," says Dale Lattz, University of Illinois Extension farm management specialist. "Income obviously has been better with the prices and yields we've been able to achieve."

Crop prices for 2008, according to Illinois Farm Bureau, are projected to average $3.90 per bushel for corn, $9 for soybeans, and $6.30 for wheat compared to much lower average prices as recently as 2005 of $2.08 for corn, $5.76 for beans, and $3.24 for wheat. Meanwhile, crop yields in Illinois this year, for example, are projected to average 179 bushels per acre for corn, 46 bushels for soybeans, and 65 bushels for wheat compared to yields last year that averaged slightly less at 175 bushels for corn, 43 bushels for beans, and 57 bushels for wheat.

Despite these higher-than-normal average prices, when the markets began to fall late this summer, they fell quickly and sharply, catching some by surprise, says one poll-taker and Agriculture Online Marketing Talk member.

"From a purely ag point of view, I think the volatility leading to market breakdowns was an event that very few ever expected," says Palouser.

But, the fact that many farmers were able to cash in on high prices earlier in the year was, in itself, a source of trouble, Ellis adds. The year's big market swings was an education of sorts in what many are calling a new era of grain prices influenced by factors that previously weren't part of the grain trade at all.

"Commodity prices in 2008 were significantly influenced by non-traditional supply and demand factors, which could resurface in the future. Farmers saw fast rising and falling markets, and along with the fall they learned that price opportunities do not last very long," Ellis says. "The farmer-friendly forward contract created financial havoc for grain elevators, which quit offering them due to unforeseen costs, demonstrating that there is a significant cost to good risk management practices. Future risk management will be expensive, but a necessary part of a farming operation that needs to be understood by farmers and lenders."


In a lot of ways, 2008 was truly one hell of a year.

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