New sales environment
The lending community has encouraged farmers to settle for break-even results in 2009, says Richard Brock of Brock and Associates. "I don't think this year's outcome will be that bad." There will be a huge spread in input costs, he acknowledges.
The best pricing opportunity may occur before planting, he says. "Corn acreage cannot and will not be as low as Informa's December forecast of 82.4 million. That would mean carryover under 500 million bushels—in which case corn would go to over $6."
In addition, he adds that the structure of the cash market has changed substantially in the past few months. "Last year, if your grain elevator wouldn't sign forward contracts, you could go to an ethanol plant. Now, almost none of them can forward price their production more than a few months out. So they either won't lock in corn purchases or they'll offer a very wide basis. It's never been more important for farmers to use futures and options themselves—and to ensure they have the needed credit to do it." —Linda H. Smith
Contracts carry a cost
Read your grain sales contracts closely—some buyers are adding or raising fees. One upper Corn Belt buyer, for example, will contract for 2009 without any added charge, but growers wanting to lock in delivery in the first half of 2010 will pay a "contracting fee," regardless of whether it is a flat price, basis or hedged-to-arrive contract. Assessments are 5¢/bu. for corn, 6¢/bu. for wheat and 8¢/bu. for soybeans.
A buyer's market in freight
The recent nosedive in ocean freight rates offer a buy opportunity for those looking to move feed around the world, says Ken Eriksen, transportation specialist with Informa. Freight rates for Cape-size oceangoing vessels have plummeted from their high last May of $230,000/day to only around $2,000/day, he reports. Eriksen says China's pullback in demand for steel, as well as a shift toward container shipments, led to a drop in demand for larger bulk ocean vessels versus midsized Panamax ships. —Jeanne Bernick
Talk is heating up about possible weather effects of a La Niña. Since October, a negative ocean water temperature anomaly has strengthened in the Central and East Equatorial Pacific, marking a move toward La Niña, which requires water to be 0.5oC below normal for five consecutive overlapping three-month "seasons" and expected to persist three months forward.
In mid-December, the Climate Prediction Center reported: "Nearly all forecasts indicate slightly less than average temperatures through summer 2009." However, it concluded, "Neutral or La Niña conditions are equally likely through early 2009."
Should cool water persist beyond March, it would mean heightened risk of a wet spring and extreme weather such as we saw last year, says Elwynn Taylor, Iowa State University agronomist. —Linda H. Smith
Get it in writing
You may feel awkward if you've always done business by word of mouth, but better safe than sorry: Ask buyers for a statement of solvency, says Ashley Gulke, an attorney in California. "Don't sell on credit to someone you are worried may become insolvent before paying you. And even if your second cousin's new husband runs the elevator, read contracts closely."
View the Web Extra.
"When oil prices rise, we complain. When food goes up, people riot." Mike Moran, Daiwa Securities America, in the July/August 2008 Penn Stater
"Net farm income may not match 2008, but it could be the second or third highest on record." Barry Flinchbaugh, Kansas State University ag economist
"We are still negative on equities." Jerry Gulke, Strategic Marketing Services
"What the pundits are missing is crude oil at $25 versus $65 is a $500 billion stimulus to the economy. It is a huge positive influence." Barry Flinchbaugh, Kansas State University ag economist
Top Producer, January 2009