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Markets are Ready to Buy

00:00AM Oct 10, 2008

Linda Smith, Top Producer Executive Editor
It seems like business as usual at grain elevators, according to Darrel Good, University of Illinois Extension economist. "I haven't heard of any [credit-related] issues.” Grain prices well off their highs mean the need for less cash than they anticipated this summer, he points out.
At the same time, because corn prices have dropped much faster and further than ethanol prices, profitability of ethanol production has increased substantially, Good notes.
Livestock profitability also may have improved some, so feeders should also be ready to buy. "Quoted cash cattle prices are about unchanged from August. Cash hog prices have dropped from a peak of $64 to $50—a 22% drop,” says Good. "Corn prices have dropped 28% and soybean meal, 35% since Aug. 1.”
Add in the collapse in feeder-cattle prices, and cattle feeding profitability rose some $40-$50/head practically overnight, adds Jerry Gulke of Strategic Marketing Services. That's despite a nearly 33% drop from in fed-cattle prices from their highs in July. – Linda h. Smith
New way to finance.
Cargill AgHorizons just rolled out a new credit program. Rather than simply shutting off forward contracts, as some elevators did at times this year, CAH has teamed up with Wells Fargo to fund hedges on them. CAH will repay Wells Fargo and deduct the cost from its payment to the farmer upon delivery of the crop.
Producers can forward contract a portion of their crop up to three years ahead (2009-2011). EliteHEDGE, as the program is called, will be available where CAH and Wells Fargo both do business—pretty much the entire Corn Belt plus Colorado and Texas.
According to CAH, "EliteHEDGE provides the benefits of transparency—farmers can see exactly the hedging costs needed to carry their forward contract to delivery. No comparable vehicle is available to help producers underwrite the higher costs of forward contracting in a market that has been remarkable in its volatility.” –Linda H. Smith
Can corn compete?
Chicago feed wheat prices are in the $2/bu. cash price zone because of huge divergence between futures and cash prices, reports J.C. Hoyt of Futures are in the $6 area. "Wheat is the new oats,” he says. "With that kind of competition in the feed bunk and possibly the second largest corn crop on record coming out of the field, one has to wonder if the same kind of basis event will occur.”


You can e-mail Linda Smith at