Corn and Soybean Prices and Outlook

1. Corn and Soybean Prices and Outlook Ag Prices Conference August 27, 2008 Wisconsin Dells Rami Reddy UW-Platteville

2. Uncertainties and Opportunities • Increased volatility in commodity markets. • Lots of uncertainty. (P=TSCI) (Price=Trend*Seasonal*Cycle*Irregular) • The volatility and uncertainty are going to stay with us. • Geo-political issues. • Once cent decrease in average price of gasoline is big news for us. How about 50% increase in food prices – food riots.

3. Is there a structural break? • Record high crops – record high prices. • Good crop-poor reward; Poor crop – good reward. (Is this violated?). • Global consumption exceeded global production in eight of the past nine years. • Low grain inventories-rising prices to ration usage. • It is developing over a long time ( over a decade ) with a kicking factor of bio-fuels demand. • Is bio-fuels is the single most factor to blame? Why not economic growth? • Price levels have reached higher plateau.

4. Why price increase!(Supply and Demand&/or Combination of factors) • Supply side factors: • Production problems. • Tight global supplies. • Low carry over stocks. • All time very low stocks to use ratio in US as well as in the World. • Adverse climatic conditions; Weather and diseases. • Increasing cost structure. • Less public investment in agricultural research. • Demand side factors: • Strong economic growth & consumption increase esp. India & China. • Bio-fuels growth. • Favorable exchange rates: weak dollar ($ depreciation is 54% since 2002) (US economic growth) • Capital investment flows into commodity markets: Index funds. • Market distortions due to government policies. • Excessive Speculation???

5. Global factors*** • Strong correlation between energy and corn, soybean prices. • Carry-over stocks declined in tandem with global economic growth and demand has increased for commodities. • Farm sector is linked directly to the energy sector via bio-fuels production. • ***Stop or reduce bio-fuels production is like asking a starving person to stop eating or a person with minimum means to reduce eating/not to upgrade diet.

6. Outlook for 2008-09 • US Corn & Soybean markets. • Wisconsin share compared to other states. • Wisconsin crop progress.

9. Corn-Dec-2008 futures price

10. Corn-Dec-2010 futures price

11. Price outlook of corn • USDA projection for the nation-2008: • Production down 6 percent. (12.3 billion bu.). • Average yield 155 bu./acre; up 3.9 bu. from last year. • Lower expected season-average farm price is forecast at $4.90 to $5.90 per bushel, down 60 cents on both ends of the range from that of previous report. • WI projections: • Production down (less area harvested) • Average yield 141 bu./ acre; up 6 bu. from last year.

14. Soybean-Nov-2008 futures price

15. Soybeans-Nov-2010 futures price

16. Price outlook for soybeans • Risk: early frost. • Mild summer weather – reduced risk premium • Improved Argentina situation. • High farm input prices – Brazil. • Appreciation of US dollar. • USDA projection for the nation-2008: • Production up 15 percent. (2.97 billion bu.). • Average yield 40.5 bu./acre; down 0.7 bu. from last year.

17. Average price forecast-2008: • The U.S. season-average soybean price for 2008/09 is projected at $11.50 to $13.00, down 50 cents on both ends of the range. • Soybean meal prices are projected at $330 to $390 per short ton, down $25 on both ends of the range. • Soybean oil prices are projected at 54 to 58 cents per pound, down 5 cents on both ends of the range. • WI projections: • Production up (more area harvested); 32% more than last year. • Average yield 42 bu./ acre; up 3 bu. from last year.

19. Recommendations • Be cost conscious. (control fuel and fertilizer costs by purchasing in advance). • High prices do not lead to higher profits. • The income differential between a producer that has good control over costs and with good marketing skills is high compared to someone that does not pay much attention to cost picture. • Farmers will be subjected to price-cost squeeze. • Continuing education and extension programming. • Long-term planning. • These are the years that separate good managers from less-than-good managers. • Need good information and good decision making skills.

20. Escalating costsUp 9.3% in 2007 • Fertilizer costs up: High nitrogen costs (> 26 %). • Feed (22%) & Fuel (14%) costs. • Agricultural chemicals (11%). • Demand for storage space and machinery (11%). • Trend for all expense items are higher than 2006. • Mid-west region is the highest with 29% increase. • 2008 is no different except with more percentage increases for feed and fuel. • Costs are inflexible downwards. • Higher cash rents and increased farmland value. • Look for cheaper alternatives and substitutes.

24. Projection for 2008-09 grains • Declining profit margins: Expected softening in prices and inflexible (higher)costs. • Corn needs to be $4.50 and soybean needs to be $11.00 and above to realize profitable returns. • Retreat from current high prices happen as Dollar strengthen and crude oil prices decline. • Pork and beef prices are projected to increase in the next year.

25. Looking forward Control fear and greed. Be objective. Have the plan and follow it. • Global economy is slowing down. • Inflationary pressure. • Interest rates increase. • Dollar Appreciation. • Exports (grain) will decline. • Higher volatility. • Geo-political issues. • 2008-09 is the pivotal year and will see prices somewhat lower than 2007-08.

26. Questions & Comments • Thank You!!!