Hot News

1.15.2008

By BRUCE HOTCHKISS
Senior Editor

HARRINGTON, Del. — If, as analysts say, the agricultural commodity markets weathered what they are calling “The Perfect Storm” in 2007, then surely, they add, farmers need to batten down the hatches for “The Perfect Storm II” in 2008.
All the market forces have come together to launch “a new era” in U.S. and world agriculture, which will be marked by extremely tight supply-and-demand ratios and a volatile marketplace.
It was Jerry Gulke who likened the 2007 commodity market performance to the 2000 motion picture of the same name — and it was Gulke, president of Strategic Marketing Services in Rockford, Ill., and an Illinois and North Dakota corn and soybean farmer, who returned to Delaware this year to christen “The Perfect Storm II.”
Gulke was one of four speakers at a grain marketing strategies conference last Wednesday, held as part of the week-long Delaware Ag Week observance.
“The commodity markets,” he said, “have gone wild ... it’s unbelievable ... we are going to need more crops ... somebody’s going to have to do without corn or soybeans over the next couple of years because we are not going to have enough to meet demand.”
The ramifications of all of this? Where he farms in Illinois, land he bought for $3,200 an acre can fetch $25,000.
“I can sell $4.50 corn as far as the eye can see on land I paid $1,200 an acre for and I can get 150 bushels an acre,” Gulke said.
Don’t be fooled, he said. It’s a good time to get into farming.
Still, at what price does a commodity have to reach before the buyer balks and says, “I am not going to buy it”?
That hasn’t happened yet, he said, but, out in his part of the country, some ethanol plants have sold their corn on the market rather than process it into fuel.
Under these circumstances, Gulke said, history provides no answers.
No one can get up and tell you, he said to his large farmer audience, here’s what we did before in this scenario.
Bottom line: “We haven’t been here before,” Gulke said.
Dick Willey agreed. Willey, president of Perdue Agribusiness, said that market forces such as the increasing demand for western diets in countries such as India and China, the surge in biofuels development in this country, notably ethanol from corn, and the weakening U.S. dollar, had combined to create “unbelievable times.”
He and Gulke agreed: Beans will buy back those corn acres, ending stocks in corn, soybeans and wheat are “precarious,”
There is intense competition for acres, world demand is rising over production of all three major commodities, and perhaps most importantly, “risk management is the key” to riding out the storm for all ag endeavors, whether it be the family farm or the processing, plant.
And it’s not going to end in 2008, both men cautioned.
Making the proper marketing decisions will be “a multi-year problem,” Gulke said. “It will be corn to beans this year and perhaps beans back to corn next year.”
And then what?
For example, he said, the federal government has established a 15 billion-gallon ethanol mandate by the year 2015.
That will require 11 million more acres of corn and that could mean opening up the CRP.
“The world has changed,” Willey said, “and in just two years.”