1. PURDUE COOPERATIVE EXTENSION SERVICE
September 18
Ag Outlook Update
PURDUE COOPERATIVE EXTENSION SERVICE
March 31, 2008

2. Rapid World Economic Growth
September 18
Rapid World Economic Growth
Ethanol
Weak Dollar

3. 08 Crop
07 Crop

5. Weakest $ Since 95-96

7. ------------- Million Bushels ------------------
Stocks Situation
Stocks March 1
Expectation
Million Bushels
Corn-Bullish
6,859
7,078
-219 Lower
Soybeans-Bearish
1,428
1,355
+ 73 higher
Wheat-Bearish
710
666
+ 44 higher

8. :
Corn % %
Beans % %
Wheat % %
Rotation Comfort Zone

9.
2008 vs. 07
1,000 acres 
Acreage % 06 07 08
Change
Corn
78,327
93,600
86,014
-7,586
-8.1%
Soybeans
75,522
63,631
74,793
11,162
17.5%
Wheat
57,344
60,433
63,803
3,370
5.6%
Sorghum
6,522
7,718
7,415
-303
-3.9%
Cotton
15,274
10,830
9,390
-1,440
-13.3%
Oats
4,168
3,760
3,420
-340
-9.0%
Barley
3,452
4,020
4,147
127
3.2%
Rice
2,838
2,761
2,770 9
0.3%
Sunflower
1,950
2,068
2,153 85
4.1%
Sum 9 Major
245,397
248,821
253,905
5,084
2.0%

10. :
Corn %
Beans % %
Wheat % %

11. Weather
Wet Top Soils Wet Sub-Soils

12. April 5- April 9
Warm
Wet in East

13. April 7 to April 13
Cool
Wet

15. June/July/August
Warm
Dry WCB

16. Estimated Variable Production Costs
September 18
Estimated Variable Production Costs
The estimated production costs for all the crops increased, driven by higher fertilizer, seed, fuel, and interest expenses.
Purdue ID-166

17. 2008 Estimated Crop Budget:
Indiana: March 3, 2008
Prices
Corn
Soybeans
Wheat
Harvest Futures
$5.65
$14.20
$10.00
Expected Basis
-0.45
-0.75
-1.15
Expected Cash Price
$5.20
$13.45
$8.85
Estimated Yield/Acre and Returns/Acre Above Variable Costs
Wheat/DC Bns
Land Quality
bu./acre
$/acre
Low
125.0
$303
39.0
$356
62.0
$386
$557
Average
157.0
$436
49.0
$477
70.0
$441
$686
High
188.0
$588
59.0
$599
84.0
$537
$855
Budget: Purdue Id-166

18. 2008 Estimated Crop Budget:
Indiana: March 31, 2008
Prices
Corn
Soybeans
Wheat
 Prem. Corn
Harvest Futures
$5.80
$10.90
$9.36
 +$90/ac.
Expected Basis
-0.60
-1.10
-2.00
 +$138/ac.
Expected Cash Price
$5.20
$9.80
$7.36
 +$205/ac
Estimated Yield/Acre and Returns/Acre Above Variable Costs
Wheat/DC Bns
Land Quality
bu./acre
$/acre
Low
125.0
$303
39.0
$213
62.0
$293
$381
Average
157.0
$436
49.0
$298
70.0
$336
$475
High
188.0
$588
59.0
$383
84.0
$412
$602
Budget: Purdue Id-166

19. 2008 Estimated Crop Budget: Indiana: Change Since March 1
Prices
Corn
Soybeans
Wheat
Harvest Futures
+.15
-$3.30
-$.64
Expected Basis
-0.15
-$.35
-.85
Expected Cash Price
$0.00
-$3.65
-$1.49
Estimated Yield/Acre and Returns/Acre Above Variable Costs
Corn $/ac
Land Quality
$/acre
Change
Low
$303
$213
-$143
$293
-$93
Average
$436
$298
-$179
$336
-$105
High
$588
$383
-$216
$412
-$125
Budget: Purdue Id-166

20. Corn futures are trending up, while Bean futures are trending down.

21. Corn: USDA 3/31/2008 Purdue 03/04 04/05 05/06 06/07 07/08 08/09
Corn: USDA
3/31/2008
Purdue
03/04
04/05
05/06
06/07
07/08
08/09
Million Bushels
Carryin
1,087
958
2,114
1,967
1,304
1,258
Production
10,089
11,807
11,114
10,535
13,074
12,160
Total Supply
11,190
12,776
13,237
12,515
14,393
13,433
Feed & Residual
5,798
6,162
6,142
5,600
6,130
5,300
FSI Non-Fuel
1,369
1,363
1,378
1,371
1,355
1,360
FSI Fuel (Ethanol)
1,168
1,323
1,603
2,115
3,200
3,800
Export
1,897
1,814
2,147
2,125
2,450
2,000
Total Use
10,232
10,662
11,270
11,211
13,135
12,460
Ending Stocks
973
US Farm Price
$2.42
$2.06
$2.00
$3.04
$3.85-$4.35
$4.25-$6.25
$4.15
$5.25

24. March 31 Purdue 03/04 04/05 05/06 06/07 07/08 08/09 Million Bushels
Soybeans: USDA
March 31
Purdue
03/04
04/05
05/06
06/07
07/08
08/09
Million Bushels
Carry in
178
112
256
449
574
200
Production
2,454
3,124
3,063
3,188
2,585
3,115
Total Supply
2,638
3,242
3,323
3,647
3,165
3,321
Seed & Residual
111
195
187
148 95
170
Crush
1,530
1,696
1,739
1,806
1,845
1,825
Exports
885
1,095
948
1,118
1,025
Total Use
2,526
2,986
2,874
3,074
2,965
3,020
Ending Stock
301
Farm Price
$7.34
$5.74
$5.66
$6.43
$9.60-$10.40
$8.00-$11.00
$10.00
$9.50

27. Wheat: USDA 3/31/08 Purdue 03/04 04/05 05/06 06/07 07/08 08/09
September 18
Wheat: USDA
3/31/08
Purdue
03/04
04/05
05/06
06/07
07/08
08/09
Million Bushels
Carry in
492
546
540
571
456
272
Production
2,345
2,158
2,105
1,812
2,067
2,266
Total Supply
2,904
2,776
2,727
2,505
2,613
2,638
Feed & Residual
212
187
154
125 70
130
Other Domestic
987
986
993
1,015
1,036
1,035
Exports
1,159
1,063
1,009
909
1,235
1,150
Total Use
2,358
2,236
2,156
2,049
2,341
2,315
End Stocks
323
Farm Price
$3.40
$3.42
$4.26
$6.50-$6.80
$6.25-$8.25
$6.65
$7.25

29. New Crop Pricing Alternatives
Pricing strategies that tend to work well in the Pre-harvest period include:
Forward cash contracting
Selling futures to hedge
Buying put options, and
Selling cash on a forward contract and also buying new crop call options (this is called a synthetic put)

30. Why Some Elevators Are Not Offering New-Crop Contracts!
Net elevator margins only 2-3 cents per bushel
Buy cash from farmers and sell NEW-Crop Futures
High potential costs of margin money
Potential of some farmers defaulting on contracts
End users hesitant to buy new crop contracts
When Futures rose, cash prices did not move in correspondence with the futures. Why?
High open interest in futures?
Failure of convergence at maturity for wheat and soybeans
Grain elevator manager faces huge basis uncertainty

31. New Crop Pricing Alternatives
But what if you can’t price at your elevator?
Do Nothing
Use your own Broker/Advisor and:
Sell Futures to hedge
Basis risk and credit risk from margin calls
Buy put options
Basis risk and expensive
Buy put options and sell calls
Basis risk and credit risk from margin on calls

34. Basis Uncertainty (Risk)
Basis widens with higher:
Transportation costs
Interest costs
Cost of grain transactions
Lack of new crop bids from end users like grain processors, foreign buyers, and the feed industry
Volatile futures prices with lack of convergence of cash and futures, especially in wheat and soybeans
Instability and uncertainty for what situations will unfold in 2008/09.

35. Futures Will Move Up
Down
Basis
Will
Get
Better
Do no pricing, wait for improvement
-Hedge with futures -Buy put options -Hedge-to-Arrive at elevator
Worse
-Basis contract. -Sell cash and buy futures.
-Sell cash and buy a call.
Price now

36. Recommended Strategies

37. September 18
Now You Know
Which
Direction
To Go
In 2008!