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Fundamentals Positive For U.S. Farm Profits

The news out of Argentina just kept getting worse this year, as the projected corn and soybean crop size dropped right into harvest.

Usually when the crop is 90% harvested you only get minimal changes in the final crop projections.

This year when the soybean crop harvest got to 90%, my projection for the size of the Argentine crop dropped by another 1.5 million metric tons (MMT) or all the way down to 32 MMT. The total combined soybean crops from Brazil, Argentina, and Paraguay were down to just 93 MMT or a whopping 23 MMT (840 million bushels) less than last year.

To put 23 MMT in perspective, it would take the entire soybean crops in Iowa, Indiana, and South Dakota to replace the soybean production that has been lost in South America this year.

The drop in South American corn production was not as dramatic, but it will still take the entire corn crop from Indiana to replace the drop in the South American corn crop.

I use a variety of analysis methods when making recommendations to sell cash corn and soybeans and also when I make buy recommendations for the livestock feeders and ethanol shareholders I work with.

Right now the markets are very choppy, so I take a three-step approach to evaluate conflicting fundamental data.

I list the negative fundamentals for the corn and soybean markets.

I list the positive fundamentals for the corn and soybean markets.

I determine how I will approach marketing the 2009 and 2010 corn and soybean crops.

The negative fundamental factors for corn and soybean prices are linked to the U.S. recession and global economic slowdown.

The world's economies are no longer in a free fall, but the economies are still weak. Unemployment is still high and U.S. consumers are still cutting back, as they cut up credit cards, pay off debt, and begin to save part of their paychecks.

The combination of the lower U.S. stock market and declining real estate values has changed the attitude of U.S. consumers. It may take years for consumer confidence to rebound.

I have difficulty getting bullish on corn and soybeans when U.S. livestock farmers (hogs, broilers, cattle, dairy) are all losing a significant amount of money every month. I was surprised at how long it took for price rationing to kick in during the 2008 grain price rally. If corn and soybeans rally, I am prepared to see price rationing to start a lot faster in 2009.

Here are some positive fundamental factors that I see for corn and soybeans:

The large drop in South American corn and soybean production.

The drop in planted acreage in the U.S. in 2009.

Record soybean purchases by China in the U.S. and global soybean markets.

Weather delays getting corn crop planted in the eastern Corn Belt.

The news out of Argentina just kept getting worse this year, as the projected corn and soybean crop size dropped right into harvest.

When I study the U.S. corn Supply-Demand tables, I look at three key variables: Planted vs. Harvested, Yield, and Ethanol. For soybeans, I watch Planted vs. Harvested, Yield (what percentage will be double crop), and Exports.

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