I know you're worried about higher production costs in farming. But let's spend just five minutes celebrating this demand-driven market. In the 26 years I've been penciling columns in farm magazines, I can't recall a more exciting time to be in production agriculture.
Are you enjoying it? You should. It's rare.
It was only a year or so ago we were still making planting decisions based on government programs and burgeoning oversupplies. Those supply-driven markets depended on weather scares to make tiny upticks in price. Demand-driven markets do the same, but in a demand-driven market, if the market breaks, demand will keep growing.
It's a lot more fun to be pricing crops based on growing world demand, shrinking carryover stocks and booming biofuel markets. It's the kind of market that should help all of us sleep better.
More to come. You thought things were interesting in grain markets this year. You ain't seen nothin' yet. You're going to see great opportunities to price 2008 crops in the next 12 months, according to Farm Futures Market Analyst Arlan Suderman (below), who is giving marketing presentations for farmers at Husker Harvest Days in Grand Island, Neb., next week.
Livestock markets are growing. Exports are at record highs. We're feeding and exporting more and more dried distillers grains. New ethanol plants keep opening. In the 2006-2007 marketing year those plants ate up 2.15 billion bushels; next year that number will grow to 3.4 billion bushels.
Meanwhile world corn stocks are falling to historically low levels. Our models forecast ending stocks dropping from 1.5 billion bushels to 685 million acres next year, even with significant price rationing.
The market is already looking ahead to 2008-2009, trying to buy corn acres. That's why even though we will have a record crop and growing corn surplus this fall, prices remain strong.
The story is much the same with soybeans. Ending stocks will drop from 575 million bushels last year to 220 million bushels next year if our surveys are correct. Ending stocks will drop from 68 days of supply to 27 days of supply and will be lower again next year.
Meanwhile wheat prices are surging to new highs amid panic buying by our world-wide customers. Our online surveys show over three-fourths of farmers will increase wheat acres this fall.
Position for success. The looming battle for crop acres in 2008 has one winner, no matter what crop is grown on which farm. That's you. So how do you make it happen?
- Pay attention to chart indicators. Everyone in the trading pits is.
- Ground yourself in the fundamentals of supply and demand.
- Understand your new breakeven costs. Inputs will be up at least 10%, maybe more if you've got cash rent. Set revenue goals. Those goals may be different for young farmers with greater debt and higher risk. They may want to shoot for singles and doubles and not try for the home run each time they price grain.
Watch the corn-soy price ratio. It usually runs between 2.2 to 2.6. Last year it dipped down to 1.
5and the market responded with more corn acres.
- Patience will be rewarded. Extra profits this fall should allow you to cover cash flow so that when markets do rally this winter you're there to price grain. Don't get into a situation where you have to sell for cash flow reasons.
- If demand does break, try to price some grain out a year or more in advance. Watch the global economy for signs.
Last but not least, consider this: we're way overdue for a major drought in the