1. PURDUE COOPERATIVE EXTENSION SERVICE AG OUTLOOK 2006

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3. 3 2004: Great corn and soybean yields. Some High grain prices. High animal prices for beef, hogs, and milk. 2005: Low Corn yields. Higher input costs. Lower hog and milk prices. 2006: Average yields? Much higher input costs. Lower beef, hog, and milk prices.

4. 4 Forecast for 2006 Last 12 Months Next 12 Months GDP (Real)+3.6%+3.2% to 3.6% CPI +3.0% (Jan-July 2005) +2.5 to 3% Unemployment 4.9% (August 05) 4.8%-5.0% (August 06) 3 Month Treasury 3.4% (Sept., 2005) 4.3% (August 06) 10 Year Treasury 4.2% (Sept., 2005) 5.3% (August 06)

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6. 6 The Future?? $12 $40 $25 $20 Crude Oil Futures

7. 7 17.3 Feet Curb Weight: 5,842 7.5 Feet Curb Weight: 1,388 Europe $5.00 Gasoline U.S. $1.75 Gasoline

8. 8 Government Provisions: 2005 to 2007 Crops ($/bu.) CornSoybeansWheat Target$2.63 (+.03)$5.803.92 (+.06) Direct Payment$0.28$0.44$0.52 CCP Pivot$2.35$5.36$3.40 Maximum CCP$0.40$0.36$0.65 National Loan1.95 (-.03)$5.002.75 (-.05)

9. 9 Government Policy Just two more years under current bill 2006 to 2007 crops. Review LDP rules for Corn: –Today’s LDP is based on yesterday’s Posted County Price. –60-day MLG Lock-in rule (CCC-697). 2007 Farm Bill Driven By: –WTO: Cotton LDP’s are not legal. Impact soybeans, corn, and wheat as well for 2007 Bill. –Federal budget deficits. Will Congress cut payments to agriculture?? –Political Landscape: House Ag committee has changed leadership, Senate is more intact. Likely Implications for 2007 Farm Bill –Reduced spending for agriculture. –Broad based programs like EQUIP and CSP. Less commodity based. –Changes in the form and level of LDP payments.

10. 10 Food Prices Lower than General Inflation! Grocery store food prices up 1.4% in last year much lower than the than 3.2% general inflation. Led by lower dairy and egg prices, and generally lower commodity prices after hurricanes, and BSE last year. Greater competition from food warehouses and super centers. Katrina: Higher coffee, bananas, chicken, seafood Over the next year: –Restaurant prices +2% to 3% –Food store prices +1% to 2%

11. 11 2005: Corn +.9% Beans -2.8% Wheat -2.7%

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15. 15 Corn: USDA 9/12/2005 01/0202/0303/0404/0505/06 Carryin1,8991,5961,0879582,125 Production9,5078,96710,08911,80710,639 Total Supply11,41610,57811,19012,77512,774 Feed & Residual5,8775,5635,7986,1505,825 Food,Seed,&Ind2,0542,3402,5372,6902,870 Export1,8891,5881,8971,8102,000 Total Use9,8209,49110,23210,65010,695 Ending Stocks1,5961,0879582,1252,079 US Farm Price$1.97$2.32$2.42$2.06$1.70-$2.10 $1.90

16. 16 Friday September 9, 2005 CornSoybeans Harvest to late-March Harvest to June Harvest to late- March Harvest to June Futures Premium$0.18$0.24$0.22$0.26 Potential Basis Gain$0.15 Expected Carry$0.33$0.39$0.37$0.41 Interest-$0.04-$0.06-$0.14-$0.22 Return After Interest: On-Farm$0.29$0.33$0.23$0.19 Commercial Storage Charges*-0.22-0.29-0.22-0.29 Returns to Commercial Storage$0.07$0.04$0.01-$0.10 * Based on $.14 per bushel until December 31, and 2.5 cents per month after.

17. 17 Corn Price S trategies Harvest cash prices $1.65 to $1.80 LDP’s working-review FSA forms and mechanics –Today’s LDP is on yesterday’s Posted County Price (PCP) –60 day repayment lock-in provisions (CCC-697) Consider early LDP’s of $.35 to $.50 per bushel Great returns to on-farm storage and some on Commercial: –32 to 35 cents to late-March –36 to 40 cents into early-summer Late-spring or early-summer $1.95 to $2.10 LDP, store, and earn the carry: –LDP, store, and forward contract –LDP, store, and sell May or July futures (hedge) –LDP, store, and speculate on price rise –Do some of the first two on a sizable portion. Fewer corn acres in 2006, but better yields modest price improvement.

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21. 21 Soybeans : USDA 9/12/2005 01/0202/0303/0404/0505/06 Carryin248208178112295 Production2,8912,7562,4543,1412,856 Total Supply3,1412,9692,6383,2583,155 Seed & Residual171130111168150 Crush1,7001,6151,5301,7001,685 Exports1,0631,0448851,0951,115 Total Use2,9332,7912,5262,9632,950 Ending Stock208178112295205 Farm Price$4.38$5.40$7.34$5.75$5.15-$6.05 $5.60

22. 22 Soybean Pricing Strategies Harvest cash prices: $5.40 to $5.60 Post-harvest recovery back to $5.80 to $6.00 (by Thanksgiving) Flat-to-modestly higher in Jan, Feb. March with normal South American harvest?? Highs maybe $6.10 to $6.20 in late-spring No LDP’s expected Gross returns to storage: Store on-farm, maybe commercial –35 to 38 cents to late-March –39 to 43 cents to late spring Strategies: -Store on-farm and speculate until December, then consider forward pricing on hedging. -Consider commercial storage until Thanksgiving time. -Speculate for higher prices: Last four years cash increase has been: - 2001 Crop = +$1.50/ bu. - 2002 Crop = +$1.25+ - 2003 Crop = +$3.00/bu.-2004 Crop = +$2.20/bu. With limited storage space, the Market favors corn storage over bean storage. More acres in 2006, higher yields, lower prices????

23. 23 Wheat: USDA 9/12/2005 01/0202/0303/0404/0505/06 Million Bushels Carryin 876777492546540 Production 1,9581,6062,3452,1582,167 Total Supply2,9412,4642,9042,7762,787 Feed & Residual193119212202200 Other Domestic1,0101,003987974988 Exports9618501,1591,060975 Total Use2,1641,9722,3582,2362,163 End Stocks777492546540624 Farm Price$2.78$3.56$3.40 $3.00-$3.40 $3.20

24. 24 Estimated Production Costs

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27. 27 2004I5,838-7.1% $82.16$103.57$111.50$87.98 II6,253-9.4% $88.15$116.47$122.45$104.58 III6,360-10.2% $83.58$123.51$129.12$116.27 IV6,0972.1% $85.09$112.94$125.13$110.19 Year24,548-6.4% $84.75$114.12$122.05$104.76 2005I5,727-1.9% $89.09$122.70$129.75$104.09 II6,195-0.9% $87.96$124.70$136.05$113.36 III6,9539.3% $79.54$112.42$120.40$107.94 IV6,3924.8% $82.55$111.74$121.13$109.62 Year25,2672.9% $84.79$117.89$126.83$108.75 2006I6,1347.1% $84.84$120.09$128.77$103.89 II6,6867.9% $80.73$109.14$117.75$106.06

28. 28 For 2006: Cow numbers +.5% Milk per cow +1.8% Production +2.3% Milk prices lower, feed similar prices

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30. 30 PRODUCTION PRICES Prod. %Chg vs. Live Price % Chg Vs. Year QtrMill.#sYear-ago YearQtr$/cwt.Year-ago 2004 Year20,5082.8% 2004Year$52.5133.1% 2005 I5,1360.1% 2005I$51.9217.5% II5,0332.8% II$52.45-4.5% III5,0890.8% III$47.27-16.5% IV5,5011.2% IV$44.33-18.4% Year20,7581.2% Year$48.99-6.7% 2006 I5,1901.1% 2006I$46.75-10.0% II5,0450.2% II$50.42-3.9% Year 21,0551.4% Year $45.62-6.9%

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32. 32 Average Land: $2,945 up 9.4% Cash Rent: $126 Up 3.3% Outlook 2006: Land….up 4% to 6% Rents…up.5% to 1%

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34. 34 What’s Driving Land Values/Rents? Driver Last 3 YearsNext 2 2006/2007 Years 2008-2015? Interest Rates Alternative Investments ? Limited Supply Government Supports Returns per acre (prices/costs/yields) ? Larger Farm Size Urbanization-Desire for Land in Country Urbanization-Housing Growth & Tax Free Exchanges (1031s)

35. 35 Monday-Katrina Tuesday-Flooding Impact on Ohio River Corn Basis: -20 to -25 cents/bushel

36. 36 Kokomo Corn Basis Impact: -4 to -6 cents/bushel

37. 37 N.E. Indiana Corn Basis Impact: -2 to -3 cents/bushel