PURDUE COOPERATIVE EXTENSION SERVICE

1. AG OUTLOOK 2006 PURDUE COOPERATIVE EXTENSION SERVICE

3. 2004: Great corn and soybean yields. Some High grain prices. High animal prices for beef, hogs, and milk. • 2005: Low Corn yields. Higher input costs. Lower hog and milk prices. • 2006: Average yields? Much higher input costs. Lower beef, hog, and milk prices.

4. Forecast for 2006

6. Crude Oil Futures The Future?? $40 $25 $20 $12

7. U.S. $1.75 Gasoline Europe $5.00 Gasoline 17.3 Feet Curb Weight: 5,842 7.5 Feet Curb Weight: 1,388

9. Government Policy • Just two more years under current bill 2006 to 2007 crops. • Review LDP rules for Corn: • Today’s LDP is based on yesterday’s Posted County Price. • 60-day MLG Lock-in rule (CCC-697). • 2007 Farm Bill Driven By: • WTO: Cotton LDP’s are not legal. Impact soybeans, corn, and wheat as well for 2007 Bill. • Federal budget deficits. Will Congress cut payments to agriculture?? • Political Landscape: House Ag committee has changed leadership, Senate is more intact. • Likely Implications for 2007 Farm Bill • Reduced spending for agriculture. • Broad based programs like EQUIP and CSP. Less commodity based. • Changes in the form and level of LDP payments.

10. Food Prices Lower than General Inflation! • Grocery store food prices up 1.4% in last year much lower than the than 3.2% general inflation. • Led by lower dairy and egg prices, and generally lower commodity prices after hurricanes, and BSE last year. • Greater competition from food warehouses and super centers. • Katrina: Higher coffee, bananas, chicken, seafood • Over the next year: • Restaurant prices +2% to 3% • Food store prices +1% to 2%

11. 2005: Corn + .9% Beans -2.8% Wheat -2.7%

16. Earn the Market Carry 1. Store and forward contract 2. Store and sell futures 3. Store and speculate

17. Corn Price Strategies • Harvest cash prices $1.65 to $1.80 • LDP’s working-review FSA forms and mechanics • Today’s LDP is on yesterday’s Posted County Price (PCP) • 60 day repayment lock-in provisions (CCC-697) • Consider early LDP’s of $.35 to $.50 per bushel • Great returns to on-farm storage and some on Commercial: • 32 to 35 cents to late-March • 36 to 40 cents into early-summer • Late-spring or early-summer $1.95 to $2.10 • LDP, store, and earn the carry: • LDP, store, and forward contract • LDP, store, and sell May or July futures (hedge) • LDP, store, and speculate on price rise • Do some of the first two on a sizable portion. • Fewer corn acres in 2006, but better yields modest price improvement.

22. Soybean Pricing Strategies • Harvest cash prices: $5.40 to $5.60 • Post-harvest recovery back to $5.80 to $6.00 (by Thanksgiving) • Flat-to-modestly higher in Jan, Feb. March with normal South American harvest?? Highs maybe $6.10 to $6.20 in late-spring • No LDP’s expected • Gross returns to storage: Store on-farm, maybe commercial • 35 to 38 cents to late-March • 39 to 43 cents to late spring • Strategies: • Store on-farm and speculate until December, then consider forward pricing on hedging. • Consider commercial storage until Thanksgiving time. -Speculate for higher prices: Last four years cash increase has been: - 2001 Crop = +$1.50/ bu. - 2002 Crop = +$1.25+ - 2003 Crop = +$3.00/bu. -2004 Crop = +$2.20/bu. • With limited storage space, the Market favors corn storage over bean storage. • More acres in 2006, higher yields, lower prices???? Not if S. America is Normal

24. Estimated Production Costs

25. Animal Industries

27. Cattle Supply & Prices Finished Steers 450 - 500 Heifer Calves 500-550 Steer Calves Feeder Steers

28. For 2006: Cow numbers + .5% Milk per cow +1.8% Production +2.3% Milk prices lower, feed similar prices

29. Moderate farrowings

32. Average Land: $2,945 up 9.4% Cash Rent: $126 Up 3.3% Outlook 2006: Land….up 4% to 6% Rents…up .5% to 1%

34. What’s Driving Land Values/Rents?

35. Monday-Katrina Tuesday-Flooding Impact on Ohio River Corn Basis: -20 to -25 cents/bushel

36. Kokomo Corn Basis Impact: -4 to -6 cents/bushel

37. N.E. Indiana Corn Basis Impact: -2 to -3 cents/bushel