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Corn+Soybean Digest

This Year's Crop Price Outlook: The Good, The Bad, The Ugly

The question shot like a bullet out of the farmer audience. And Luke Hickey from Advance Trading was in the crosshairs.

"Are you telling me I should sell my grain for below the cost of production? "

It's a question no market advisor is comfortable answering. But the chance to minimize your loss may be your best opportunity in 1999. Surplus stocks tied to even a normal crop year could keep corn and soybean prices below almost anybody's production costs.

Your best friend in marketing this year likely will be the government loan price for corn and soybeans.

"The market is comfortable where it's at and it's not seeing any reason to move higher," says Hickey, Advance Trading, Bloomington, IL. "Right now the loan offers a cash floor price. There isn't a marketing tool I can use currently that will do better."

And Hickey doesn't see a likely scenario to change the price picture anytime soon - particularly for soybeans.

"The South American crop is coming in good shape, predictions are that farmers will add 1-2 million acres of soybeans in 1999 and we're too far along for any significant change in those plans," he says."That leaves weather as the only factor that could move the markets much this year."

But the numbers don't look good for even a weather scare to move the market away from the loan rate. Advance Trading's good, bad and ugly price scenarios are shown in the accompanying tables.

"Farmers are still asking whether we'll see $6 beans at the farm," Hickey says. "That appears to be the number where most guys can break even."

It isn't difficult to put together a scenario where beans slide well below $5, says Larry Shonkwiler, corporate economist at Advance Trading.

"You don't even have to look at the numbers to know it's going to be a tough year," he says. "When you think about how many bushels we've got in storage, the South American crop and the number of acres of beans that are going to be planted in the U.S., it's one of the most bearish scenarios I've ever seen for any crop grown in the U.S."

When Shonkwiler does look at the numbers, the bear becomes a monster. If U.S. yields only equal last year's, he predicts the average farm price for beans could drop to $4.01. That's almost $1.35/bu less than last year's disaster. And, in a worse-case scenario - a national average of 41.1 bu/acre - the average on-farm price of beans could drop to $3.72.

Is there a bright side? Shonkwiler says if production drops an average of 6 bu/acre nationally (now that is a major weather event!), bean prices still would only rise to $5.78.

In spite of the numbers, most analysts agree there are going to be close to 2 million more acres planted to beans in 1999 than in 1998.

"When farmers look at their production costs against the loan rate, beans give them the closest return to their costs," Hickey says.

"The market is testing how low prices need to go before we see a shift away from soybeans," he adds.

Shonkwiler sees a slightly brighter picture for corn.

"I've gotten more friendly with corn recently," he says. "Both the wheat and corn countries around the world have been responsive to our price levels. That could result in acreage cutbacks overseas. And the former Soviet Union has had two bad crops in a row. At some point the U.S. government may have to look at significantly more donations to those countries.

Their stock levels are very low."

While there's plenty of corn stored around the country, its supplies aren't as ample as soybeans', Shonkwiler says.

"It's definitely a more volatile market, and the world is far more dependent on U.S. corn than it is on our beans and products," the economist points out. "It won't take much of a drop in corn yields to tighten up U.S. stocks. Any sort of weather scare is going to push prices."

Severe weather, dropping the national yield average to just under 85 bu/acre, could springboard average corn prices to farmers back above the $3/bu mark, according to Shonkwiler's numbers. That's a comfortable number as long as the weather disaster wasn't on your farm.

With average weather and average yields, however, you can expect the average on-farm price of corn to stay just below $2. In his worst-case scenario, excellent weather and an average corn yield of 138.6 bu/acre, Shonkwiler sees on-farm prices dropping to $1.68 - about 20 cents/bu below the national average loan rate.

So the question remains, should you consider marketing corn and/or soybeans below your cost of production? In Hickey's view, that depends on how your cost of production matches up with the loan rate.

"The loan is a cash floor price. It's a starting point," he says. "Next you start setting target points above that. Maybe 20 cents to 25 cents higher. And if the market gives you the opportunity to sell at that target, take advantage of the opportunity."

With the limited marketing opportunities you're likely to have this year, there are two factors that you must keep in mind, points out Hickey.

"Make sure you are eligible for the loan. It's rare that a farmer isn't, but you need to make sure you qualify," he says. "Second, stay flexible. The market may offer some better price opportunities, and you need to make sure you're in aposition to take advantage of them."

A 1/2 million acreage increase and "trend" yields of nearly 131 bu/acre point to a 9.6 billion-bushel crop. A 9.4 billion-bushel estimated use suggests adding 100-150 million bu/acre to '99/2000 carryover.

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