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Corn and Soybean Prices and Outlook Ag Prices Conference August 27, 2008 Wisconsin Dells Rami Reddy UW-Platteville.

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Presentation on theme: "Corn and Soybean Prices and Outlook Ag Prices Conference August 27, 2008 Wisconsin Dells Rami Reddy UW-Platteville."— Presentation transcript:

1 Corn and Soybean Prices and Outlook Ag Prices Conference August 27, 2008 Wisconsin Dells Rami Reddy UW-Platteville

2 Uncertainties and Opportunities Increased volatility in commodity markets. Lots of uncertainty. (P=TSCI) (Price=Trend*Seasonal*Cycle*Irregular) The volatility and uncertainty are going to stay with us. Geo-political issues. Once cent decrease in average price of gasoline is big news for us. How about 50% increase in food prices – food riots.

3 Is there a structural break? Record high crops – record high prices. – Good crop-poor reward; Poor crop – good reward. (Is this violated?). Global consumption exceeded global production in eight of the past nine years. Low grain inventories-rising prices to ration usage. It is developing over a long time ( over a decade ) with a kicking factor of bio-fuels demand. Is bio-fuels is the single most factor to blame? Why not economic growth? Price levels have reached higher plateau.

4 Why price increase! (Supply and Demand &/or C ombination of factors)  Supply side factors: o Production problems. o Tight global supplies. o Low carry over stocks. o All time very low stocks to use ratio in US as well as in the World. o Adverse climatic conditions; Weather and diseases. o Increasing cost structure. o Less public investment in agricultural research.  Demand side factors: – Strong economic growth & consumption increase esp. India & China. – Bio-fuels growth. – Favorable exchange rates: weak dollar ($ depreciation is 54% since 2002) (US economic growth) – Capital investment flows into commodity markets: Index funds. – Market distortions due to government policies. – Excessive Speculation???

5 Global factors*** Strong correlation between energy and corn, soybean prices. Carry-over stocks declined in tandem with global economic growth and demand has increased for commodities. Farm sector is linked directly to the energy sector via bio-fuels production. ***Stop or reduce bio- fuels production is like asking a starving person to stop eating or a person with minimum means to reduce eating/not to upgrade diet.

6 Outlook for 2008-09 US Corn & Soybean markets. Wisconsin share compared to other states. Wisconsin crop progress.

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9 Corn-Dec-2008 futures price

10 Corn-Dec-2010 futures price

11 Price outlook of corn USDA projection for the nation-2008: Production down 6 percent. (12.3 billion bu.). Average yield 155 bu./acre; up 3.9 bu. from last year. Lower expected season-average farm price is forecast at $4.90 to $5.90 per bushel, down 60 cents on both ends of the range from that of previous report. WI projections: Production down (less area harvested) Average yield 141 bu./ acre; up 6 bu. from last year.

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14 Soybean-Nov-2008 futures price

15 Soybeans-Nov-2010 futures price

16 Price outlook for soybeans Risk: early frost. Mild summer weather – reduced risk premium Improved Argentina situation. High farm input prices – Brazil. Appreciation of US dollar. USDA projection for the nation-2008: Production up 15 percent. (2.97 billion bu.). Average yield 40.5 bu./acre; down 0.7 bu. from last year.

17 Average price forecast-2008: The U.S. season-average soybean price for 2008/09 is projected at $11.50 to $13.00, down 50 cents on both ends of the range. Soybean meal prices are projected at $330 to $390 per short ton, down $25 on both ends of the range. Soybean oil prices are projected at 54 to 58 cents per pound, down 5 cents on both ends of the range. WI projections: Production up (more area harvested); 32% more than last year. Average yield 42 bu./ acre; up 3 bu. from last year.

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19 Recommendations  Be cost conscious. (control fuel and fertilizer costs by purchasing in advance).  High prices do not lead to higher profits.  The income differential between a producer that has good control over costs and with good marketing skills is high compared to someone that does not pay much attention to cost picture.  Farmers will be subjected to price-cost squeeze.  Continuing education and extension programming.  Long-term planning.  These are the years that separate good managers from less-than- good managers.  Need good information and good decision making skills.

20 Escalating costs Up 9.3% in 2007 Fertilizer costs up: High nitrogen costs (> 26 %). Feed (22%) & Fuel (14%) costs. Agricultural chemicals (11%). Demand for storage space and machinery (11%). Trend for all expense items are higher than 2006. Mid-west region is the highest with 29% increase. 2008 is no different except with more percentage increases for feed and fuel. Costs are inflexible downwards. Higher cash rents and increased farmland value. Look for cheaper alternatives and substitutes.

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24 Projection for 2008-09 grains Declining profit margins: Expected softening in prices and inflexible (higher)costs. Corn needs to be $4.50 and soybean needs to be $11.00 and above to realize profitable returns. Retreat from current high prices happen as Dollar strengthen and crude oil prices decline. Pork and beef prices are projected to increase in the next year.

25 Looking forward  Control fear and greed.  Be objective.  Have the plan and follow it. Global economy is slowing down. Inflationary pressure. Interest rates increase. Dollar Appreciation. Exports (grain) will decline. Higher volatility. Geo-political issues. 2008-09 is the pivotal year and will see prices somewhat lower than 2007-08.

26 Questions & Comments Thank You!!!


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