Unexpected in 2009 will complicate planning

The 2008 marketing year was not exactly what most people expected financially or in the commodity world. 2009 will likely have similar surprises, which makes planning very difficult.

As I write this, however, corn has already recovered over $1 per bushel from the December lows, soybeans over $2 per bushel and cotton approximately 10 cents per pound. The difficulty for many producers in the coming months is knowing when and being able to pull the trigger to make sales.

Looking back at the changes in 2008, I'll make at a few observations as to what this might mean for 2009.

  1. To begin with, the world financial meltdown was similar to the agriculture meltdown in the 1980s. Both were caused by excessively high debt. This time around, however, debt-fueled consumption will now be replaced by thrift. Buying patterns of U.S. citizens will be changed for years to come.

  2. The recession will be lengthy. Unemployment will continue to rise. The housing market may bottom in 2009, but recovery is at least two years off.

  3. There will be a political shift to the left. The public's disillusionment with free markets will result in the pendulum swinging too far in the other direction.

  4. Financial markets will become more heavily regulated. While necessary in some areas, increased regulation will slow economic recovery.

  5. Confidence in the stock market has been shattered. Investors are going to turn toward more conservative investments.

  6. Deflation is the term to be used over the next 12 months and not inflation. Even though more money is being pumped into the economy, the spark to light the fire is attitudes and attitudes are too negative to start spending this money quickly.

  7. Fuel prices are going to stay low. Demand is down and supplies are up. My estimate is that crude oil will be in a trading range of approximately $35 per barrel up to possibly as high as $55 per barrel.

What it means

On the way up, producers making sales compared today's price to the low of the last six months. On the way down, it is customary to compare today's price to the absolute highs.

Get in the habit of comparing prices to the expected average of the year or to your break-even. Lows and highs don't matter.

Grain and cotton prices are getting back to profitable levels, and I believe that 2009 is going to be much more profitable than many others are forecasting. The important thing is making the selling decision at the right time.

TAGS: Management
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