Abner Womack, co-director of the Food and Agriculture Policy Research Institute, says he sees a turnaround in the farm economy 2001-2002,
as the world draws down grain stocks that began to weigh heavily on markets in 1998. Grain prices will begin to pick up after 2000, rising modestly through the decade but coming nowhere near the price runup of the
mid 1990s, barring weather or crop problems somewhere in the world.
Market momentum favors livestock
In the early part of the next decade, price and market momentum will favor livestock production, with
cattle and hog producers taking advantage of lower feed costs. "What we might be doing is setting the livestock industry up for one of the greatest expansions we've ever seen," says Womack. Livestock feeders
should take advantage of the grain markets by locking in feed prices. FAPRI's analysis has livestock prices cycling higher, peaking in 2002. Prices will fall off from that point but still remain stronger
than the lows around 1998.
Global grain price variances
Womack says a look at the historic parameters of global grain markets indicates that wheat usually seems to have a normal price variance of 40 cents in
either direction. Thus, if wheat is $2.80, prices can be expected to range between $2.40 and $3.20, barring extremes in weather, supply and demand. The price variance is 60-80 cents for beans and 25 cents
for corn. The odds of prices overstepping those bounds, ie $5 wheat because of drought, is about one in ten—one in eight for the optimists. "Don't carry half your crop over on that hope. Hold 10% to
15% if you must," says Womack. "Remember those price bands, and set price boundaries you're comfortable with."
Don't lose again from "LDP and wait" game
University of Minnesota extension grain marketing
specialist Edward Usset says some producers may play the game of taking a loan deficiency payment then wait for the rally. Says Usset: "That strategy hurt many people last year, and it could hurt again this year.
Too risky. My recommendation is for the producer to grab the LDP and establish a forward price with their local elevator for spring delivery (capture the premium or carry in forward prices). I am not at all keen on
buying calls. Basis levels are wide and paper farming demands that you convince yourself that selling low (cash market) and buying high (futures) is the right thing to do. My strategies are remarkably dull — how to lock
in $1.95 corn? — but it may be the best this current market has to offer. Besides, if $1.95 corn is a big problem, trading your way into a $1.50 will not improve the situation."
Register for MN Master Marketer Program
The University of Minnesota Extension Service is organizing a Minnesota Master Marketer Program to be held at the Best Western Red River Inn in Moorhead Feb. 16-17, March
1-2, and March 15-16. Program leader Edward Usset says it's six days of intensive marketing training for grain producers. Objectives of the program are to offer an intensive education program to improve
marketing skills and increase farm revenues, and to encourage the development of management clubs to further advance these skills. Registration is limited to 60 producers.
The program is designed for producers who
have a basic knowledge of grain marketing but wish to enhance their skills. Subjects covered will include basic and advanced marketing strategies, financial planning and farm budgeting, fundemental and technical
analysis, and supporting successful marketing clubs. Speakers will come from Universities and the private sector, and include Dr. Bill Tierney of Kansas State, Dr. Bob Wisner of Iowa State, Ray Grabanski of Progressive
Ag in Fargo, and others.
The registration fee for the program is $250, which includes all educational handouts, three lunches and refreshments at the breaks. To obtain a registration brochure call Leon Meger at (612)
625-1214. For further information on program content, contact Edward Usset, UM grain marketing specialist, at (651) 681-7999.
Although timely and appropriate grain marketing strategies may be profitable, these
strategies involve risk, and neither Prairie Grains nor the sources cited assume liability for their use.