As you turn your attention to planting considerations for 2009, a number of factors need to be tracked closely at both the local and global level to maximize profit opportunities. But just as importantly, you will need a new mindset that recalibrates price expectations down from last summer's spectacular highs to more realistic levels that still represent a significant premium to historic averages.
It's easy to get despondent at the aggressive price slides we've seen in corn and soybeans since July, and cling to the hopes that those highs are attainable again.
We believe this summer's perfect storm of events is highly unlikely to materialize again any time soon. Plus, this fall USDA unearthed an additional 3 million acres of productive land that had previously been unaccounted for — and presumably will still be in play next spring.
Excellent profit opportunities may well surface in 2009, but only growers alert to the right signals and flexible enough to move quickly will be able to fully grasp them.
Keep close tabs on fertilizer prices. We believe a marked decline could surface by mid-March 2009, which will boost corn's appeal to many farmers and could notably increase corn acreage from 2008 levels. Of course, this is still a big “if” at this point, but a number of factors suggest lower fertilizer prices are on the way — both here and abroad.
ANOTHER IMPORTANT ISSUE is the chance that limited credit for South American farmers may hinder their expansion plans. Should that be the case, acute pressure on U.S. farmers to plant more soybeans next year will result, we believe.
Our final key factor to consider going into 2009: There's no doubt the soybean market has been knocked off stride by USDA's unearthing 2 million extra U.S. soybean acres planted this past growing season. That enlarged acreage pie has certainly alleviated some of the tension underpinning the soybean market in recent months, and raises questions about how many acres this crop needs to hold in 2009.
However, global soybean inventories remain historically tight, while usage is still on an upward trajectory. In light of the fact that the most critical growing phase for South American producers still lies ahead, it's critical that U.S. farmers who have not yet allotted all their acres keep space available for additional soybean production should weather issues affect Southern Hemisphere bean emergence this winter. Weaker fertilizer prices will certainly make corn an appealing crop for many growers, but soybean prices have the potential to outperform to the upside should Brazilian or Argentine producers stumble over the coming months.
It is this potential for a new year soybean rally just as corn becomes potentially more economical — and therefore popular — that makes us stress the importance of grower flexibility over the coming months.
Leaving your options open may enable you to capitalize on favorable price moves while staying within your core strengths, and avoid a potentially detrimental stampede into corn merely because declining fertilizer prices improve crop economics.
In all, 2009 may lack the fireworks of this year, but we believe that with diligence and flexibility the informed farmer can make it one for the history books.
Gavin Maguire is director of EHedger LLC, Chicago, IL, and oversees the firm's analysis of and commentaries on the commodities futures markets.