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Challenging decisions ahead for 2008 crops

The good old days have come and gone. What we thought were volatile times when soybeans would move $1 a bushel a year, corn 50 cents per bushel and cotton 10 cents per pound — we can now look back and realize those were calm times.

Those days are definitely gone.

While we can attribute much of the volatility of prices to the rapidly expanding biofuel industry, many other factors are going to influence the volatility and the difficulty of decision-making in the year ahead. Consider some of the outside influences:

  • The energy market is in a bear move. As I write this, gasoline prices are 40 cents per gallon off their highs and challenging the March lows. The crude oil market has dropped $8 a barrel.

    The laws of economics have not been repealed. Energy prices were too high for too long and people have found a way to cut back and use alternatives. The top is in this market.

  • Non-agricultural real estate will continue in a bear trend. Real estate cycles have not disappeared, particularly in the housing market. Everyone was too bullish three years ago and the market became so grossly overbuilt that it will take at least another three years to straighten this mess out.

  • Growth in China is starting to slow. Those in its labor force are waking up to the fact that they've been underpaid for years and even though they are not unionized, strikes at factories are driving labor prices higher. As they start on a trend of losing their competitive advantage on cheap labor, the growth curve is going to start slowing and shifts in growth will take place into countries like India.

  • The stock market has peaked. While a bear market similar to 2000 and 2001 is certainly not anticipated, concerns worldwide about industrial growth will keep a lid on any major advances in the equity market.

What does this have to do with farming? A lot. All of the changes are going to have an impact on commodity prices and your decision-making process over the next several months.

There will be an incredible battle over planted acreage this coming year between corn, soybeans, wheat and cotton — not to mention many specialty crops. Because of this, prices of all commodities will have to remain relatively high.

My guess as of right now: we will see a decline in planted corn acreage this coming year and an increase in both cotton and soybeans.

Production cost in corn has skyrocketed and the profit potential in soybeans has increased dramatically, particularly in the Southern states.

Push your own pencil and calculate which is going to work best for you. This is not an automatic decision.

Another factor to keep in mind this coming year on the purchasing side — go slow on anything energy-related. Too many people are going to remember it paid to buy diesel fuel, gasoline and natural gas in advance last year. That's what worked last year.

These markets are now in a bear trend — be patient.

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