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Corn+Soybean Digest

5 Market Issues To Watch In '07

I spent the end of 2006 conducting 18 seminars across the Midwest, and during that time I learned a lot from Central and Western Corn Belt farmers. I'd expected a sense of euphoria at the meetings. Instead, these are the five big concerns and questions that came up at almost every seminar:

  1. Land values and cash rents continue to soar. Land prices are up at least 20% from last year and cash rents at many locations are up 30-50% from last spring. This is causing a lot of concern as the profits of $3.50 corn and $7 soybean futures are given to the landowners.

  2. Farmers tend to be at 100% sold or 0% sold in the corn and soybean markets, with very little grain being offered in late 2006 at much higher profit levels. Our subscribers are well positioned, but a lot of other farmers sold too much early of their 2006 and 2007 production and are now reluctant to jump into the futures market. They want to get the last of the sales made near the top to raise their average.

  3. Ethanol share values are still high but have started to decline as processing profitability has dropped by 50-80%. Some of the newer, higher cost, more leveraged plants that are not hedged will start losing money if Chicago Board of Trade (CBOT) corn futures rally up to $4.30 or higher. What will shares be worth two years from now if corn prices stay high and gasoline prices stay low?

  4. “The amount of corn-on-corn acres around here will be staggering,” says a Northern Illinois farmer. My own observation is that the amount of corn stalks that have been plowed under in Minnesota is the largest I've ever seen. The projections of a 7-million-acre increase in 2007 may prove to be conservative.

  5. It's dry in the Midwest and the western part of the Corn Belt. The 1-1½ in. of rain that hit right before freeze up will help some but most of the areas west of the Mississippi have 10-40% of normal subsoil reserves. No yield loss yet — but it will keep a floor under corn, soybean and wheat prices this spring, and may create some volatile spring and summer markets.

What To Do

I don't have a crystal ball and can't perfectly forecast the future to answer all of these questions. I wouldn't worry about these questions, and would focus on making the best individual decisions you can. Here is the basic strategy that worked well in 2005 and 2006 and is the strategy we'll implement for our subscribers in 2007.

  1. Get 30-50% of your new-crop corn, soybeans and wheat locked in with hedges or contracts by early this spring.

  2. Get an additional 30-50% protected with put options by mid-May 2007.

  3. Buy the appropriate level of CRC or RA insurance from an agent you can trust.

This three-step program worked well in the bear market year of 2005 and in the bull market year of 2006.

Alan Kluis is the president of Northland Commodities LLC, based in the Minneapolis Grain Exchange, Minneapolis, MN. You can contact him at or call toll free 888-345-2855.

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