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Christmas Ghosts

What a year in grains! The first half was dominated by the bears, but the momentum shifted and the second half has been all bulls. With Christmas and year-end looming, the 2010 battle is ending in a rout.

With a rematch set for 2011, I’ll try to draw a bead on expectations for 2011 grain markets. With apologies to Charles Dickens and “A Christmas Carol,” I’ll look for insights by visiting with the Ghosts of Christmas Past, Present and Future.

The Ghost of Christmas Past: Since early July, this market has the look and feel of 2008 all over again. It started with wheat and prices rising 60% from the end of June to the first week of August. It continued with corn and the late-summer realization that this would not be another record crop. Prices increased 50% from early August to mid-November.

Last but not least are soybeans. Is there no end to the Chinese appetite for soybeans? Prices are up over 40% from early July.

Attempts to explain the price turnaround in terms of supply and demand miss a broader point; this is not a bull market in grains – this is a bull market in commodities. Look at cotton, coffee and sugar. Look at fertilizer, oil and ethanol. Ads promoting gold as an investment run every five minutes, proclaiming the virtues of a hard asset, store of wealth and “never worth zero.” The same can be said of corn and soybeans. Just as they did in 2008, individual investors and investment funds are taking note and buying commodities.

The Ghost of Christmas Present: The new year is coming and you have an important question on your desk: What will you plant in the spring? Every possible grain alternative is sporting a higher price that says, “Choose me.” Prices for next year’s soybean crop are over $10/bu., while corn is over $4 and wheat continues to flirt with the $7 mark. Each is above production costs.

Speaking of production costs, look at your current bills for fertilizer, rent and fuel. This is one scary ghost. Production costs for corn are projected at nearly $4/bu. in 2011, more than twice the level in 2005. Production costs for soybeans are projected to push above $9/bu. They were less than $5 just six years ago.

Bah Humbug! That planting question on your desk is important and your alternatives may not be as profitable as you think.

The Ghost of Christmas Yet to Come: It has been said that “forecasting is difficult, particularly about the future.” How true. Pick up an old grain newsletter from mid-June. There is a very good chance that the tone was bearish and why not? The corn and soybean markets had been drifting lower for six months, and the 2010 crops were off to a great start. I saw projections for December 2010 corn futures as low as $3/bu. Forecasting is difficult.

After the November market report, I had an interesting discussion with a market advisor. July corn futures had pushed above the $6 mark but he was excited about the $7 or $8 corn that was sure to come. Time may prove him right but…forecasting is difficult.

You should not base business decisions on somebody’s opinion of what might be, nor should you dwell on old decisions. Ebenezer Scrooge found redemption by embracing today. You can do the same with a marketing plan based on your business needs and not the ghostly voices of Christmas Past and Future.

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