Market Strategy

December 4, 2009 03:06 AM

2010 Acres: A Starting Point

The last thing you may want to think about is producing another crop when you probably just completed harvest. The difficult year just past is one we may want to forget. Perhaps looking ahead to 2010 will help us put our difficult year behind us and provide the will and incentive to "do it again."

My basic assumptions in formulating the table below are:

•Two-million-acre shift from wheat to corn and soybeans; trendline yields.

•Improvements in corn and soybean exports, corn used for ethanol, soybean crush and domestic wheat use.

•South American soybean production increases by between 27 million metric tons (mmt) and 32 mmt, mainly due to a return to normal yields plus a big boost in Argentina's acreage at the expense of wheat.

•Continuation of China's appetite for protein (oilseeds and protein equivalents) but to a lesser degree, with corn imports a wild card in 2010.

•Perhaps more feed/ethanol corn use to offset lost efficiency due to quality issues.

Seeking Value. Commodities, like equities, wiped out nearly all the gains made during 2007/08 and returned to pre-bubble levels. Last summer's columns outlined that I was looking for a bottom in corn near $3.01, wheat $4.40 and soybeans near $8 for this marketing year. All prices rallied considerably from those levels on weather and late harvest. 

Evidence that the worst of the recession is behind us and a return to foodstuff demand growth of 2% to 3% per year may have more to do with a market trying to discount future demand into current price than with speculation. The market is once again testing agriculture's viability in the world economy and seeking prices that reflect reevaluation of not only equities and housing, but also land and the things we grow, eat and burn. We shouldn't expect anything less from an efficient price discovery system. 

Table: Initial Prospects for 2010

Jerry Gulke farms in northern Illinois and North Dakota and is president of Gulke Group Consulting at the Chicago Board of Trade; contact or (312) 896-2080.

Top Producer, December 2009

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