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Corn+Soybean Digest

Strong Grain Markets, New Farm Bill

Strong Grain markets Continue
The corn and soybean grain markets have continued to be very strong in recent weeks, with the futures markets at the Chicago Board of Trade (CBOT) continuing in a very solid pattern for the fall harvest season. The combination of fairly tight grain supplies in the U.S. and globally, along with increasing domestic demand for livestock feed and renewable fuels and strong export demand continue to provide strength to current and future grain markets. The corn and soybean markets rose significantly during fall 2006 into early 2007, and have maintained those levels throughout most of the 2007 growing season. Wheat markets also rose significantly in 2007, responding to reduced production and supplies, and strong world demand. With the current cash grain prices, producers really can’t make a wrong grain marketing decision on their 2007 grain, because most producers are locking in a profit on their 2007 crop at current commodity price levels. However, producers should keep some marketing flexibility to take advantage of further enhancements in grain prices in 2008.

Many producers are also taking advantage of strong CBOT futures prices, and very good forward-price bids at local grain markets, to begin pricing their anticipated grain production for 2008. Forward pricing some of the anticipated 2008 crop is likely a very good risk management tool, as producers begin planning for the 2008 crop year. Crop input costs for seed, fertilizer and fuel are likely to increase significantly for the 2008 growing season, as are cash rental rates on rented farm land. As a result, the net margins from crop production in 2008 may not increase significantly, even with the relatively high grain price levels that are currently projected for 2008.

New Farm Bill Gets Closer
On Oct. 25, the U.S. Senate Agriculture Committee, chaired by Sen. Tom Harkin (D-IA), approved the preliminary U.S. Senate version of a new farm bill. That bill now goes to the full U.S. Senate for approval, which is expected sometime by mid-November. The U.S. House of Representatives passed a new farm bill in late July 2007, based on legislation passed by the U.S. House Agriculture Committee, chaired by Congressman Collin Peterson (D-MN).

Once the Senate passes a final version of a new farm bill, a House and Senate Conference Committee will be required to work out differences in the two versions of the bill, then the compromised version of the bill will be voted on by the whole U.S. House and Senate; the new bill will need to be signed by President Bush before it becomes law. The Bush Administration has been very active in discussions related to a new farm bill, and has raised some concerns with certain provisions in the bill, especially those related to budgetary items. The new farm bill would be implemented for the 2008 crop year, and would likely continue through the 2012 crop year. There do not appear to be any proposed changes in commodity provisions in the new farm bill that should have a significant impact on the planning process by producers for the 2008 crop year. However, a new optional average crop revenue(ACR) program is being proposed by the U.S. Senate, which would base future farm program payments on average commodity prices and the average state yield for a crop in a given year, rather than the current price-onlycounter-cyclical payments (CCPs). If enacted, the new ACR program will require some analysis by producers before opting for the new program, rather than the current farm programs.There are many other provisions in the new farm bill being proposed by the U.S. House and Senate, including a new Energy Titlewith considerable support for renewable fuels, changes in conservation programs, added funding for nutrition programs and a permanent disaster assistance program in the Senate version. There are likely to be several amendments offered on the U.S. Senate floor before the final vote on the new bill in the Senate. There are also many differences to be worked out in the Conference Committee between the U.S. House and Senate before a final farm bill is passed and sent to President Bush to be signed into law. However, it does look very hopeful that a new farm bill can be passed by Congress and signed into law by President Bush either late in 2007 or in early 2008.

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at [email protected].

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