FARGO, N.D. -- Virgil Robinson, an analyst with Pioneer Hi-bred International Marketing Services who often appears on the television show "Market to Market," has an uncertain view of 2009 and beyond.
Overall, Robinson calls it VUCA -- a "volatile, uncertain, complex and ambiguous world." He says the global economic situation will remain soft, while ag fundamentals remain firm. The year 2009 likely will see volatile grain prices and a challenged livestock sector, he says.
Among the immediate factors are the American Recovery and Reinvestment Program, a part of the "stimulus" package making its way through Congress. Robinson, who spoke at the the 100th anniversary Northwest Farm Managers meeting Feb. 3 in Fargo, N.D., says the program probably needs to be passed, despite its potential impact on future generations, including his own children.
The forecast
Other things Robinson sees:
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n Stronger dollar: The U.S. dollar value has been moving "upward" and probably will move higher still. Robinson says that typically assists in buying more nitrogen fertilizer with cheaper dollars. He says it historically assists U.S. investors putting money into foreign assets, including ag and infrastructure in places such as South America, the former Soviet Union, Africa and perhaps China. This will add to global competition in agriculture.
Export sales to date have been poor, he says. A lot of utility-type wheat finding its way into feed channels has been a problem for corn. Buyers' access to credit has been a problem, and many are covering only basic, hand-to-mouth needs, waiting for an infusion of credit.
n Risk management: In 2009 and 2010, Robinson says farmers will need to focus heavily on risk management, and trying to preserve profit margins in their production. He used his own farming interests in Iowa, noting that market projections point to a $9-per-acre profit margin for 2009 crops, down from $249 projections last year at this time.
"We are closely approaching the 'fear' mode, and 'what to do' subsequently becomes the issue," he says.
Farmers need to make decisions on facts, not emotions, thinking in terms of profit per acre and not price per bushel. Farmers need to have a marketing plan focused on profit with the discipline to make decisions and sales when goals and objectives are reached.
"And farmers need to have a financier that understands their business and intentions," he says.
He quotes Northern Trust, a Chicago-based multi-bank holding company, as predicting the "path of economic activity" in the coming years will be "not a 'V' or a 'U' or an 'L' but 'W' -- down, up, down, up, all within four or five years."
To gauge the future, Robinson watches the index of Leading Economic Indicators and looks to see when the three-month moving average of those indicators stops declining.
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"When that happens, that's a good sign," he says, referring producers to a Web site www.conference-board.org .
n Competitor crops: He points especially to a report by Mike Wolverton, Kansas State University ag economist, who recently returned from a trip to South America and concluded the crop prospects for corn, wheat and soybeans is not good, based on rains. In particular, Robinson focuses on unrest among Argentina's farmers over increased tax rates.
Robinson says "knowledgeable sources" in his own organization think there could be "another massive protest in the form of a strike" and that could be a "bullish sign" for crop prices.
In the longer term, Robinson says U.S. companies are working on a 40 percent increase in production of corn in the next several years, but he expects other countries such as China, Australia and Brazil are working on similar increases.
n Market players: Robinson questions whether index funds will again become an important player in agricultural commodities, especially if alternative investment opportunities in the securities market remain "not so good."
n Ethanol: It's positive that California Gov. Arnold Schwarzenegger has discussed increasing the percentage of renewable fuel in the state from the current 5.7 percent to perhaps 9 percent or 10 percent. That would be a market for 650 million gallons, with 2.8 bushels of corn. It's also positive that pipelines may be developed to take ethanol into the southwest U.S. to increase demand for renewable fuels.
Robinson quotes newly confirmed Energy Secretary Steve Chu as saying, "The nation needs to move very quickly away from corn ethanol and toward new fuels made from non-food sources," and says if corn spikes, Chu "would not hesitate to make the decision" to try to change Renewable Fuel Standard targets for corn-based ethanol.
He says Agriculture Secretary Tom Vilsack, a former Iowa governor, will be a counterweight because he is aware of the investments that have been put into developing the renewable fuel resource.
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ACRE and DCP
Dwight Aakre and Andy Swenson, North Dakota State University Extension Service farm management specialists, have taken a look at one of the first comprehensive analysis tools for the Average Crop Revenue Election farm program option from the 2008 farm bill. The other option is the Direct/Counter-Cyclical program. Once signed up into the ACRE program, the farmer must stay in through the 2012 end of the bill.
Aakre and Swenson say enrolling in ACRE means that the farmer thinks he'll more than offset a known 20 percent loss in direct payments under the DCP program and possible losses in countercyclical payments. The direct payment loss would average about $2 an acre a year for farmers enrolling in 2009.
Once signed up in ACRE, farmers are out of the countercyclical program and give up 25 percent of direct payments, Swenson says. Famers also have their loan rate cut by 30 percent.
"That would probably not be a cost because prices would have to drop so low that that would not be a consideration," Swenson says.
Aakre says the ACRE calculation involves several moving parts and unknowns, but that the probability is greatest for wheat to lead to an ACRE payment, largely driven by a drop in price. That likelihood is related to the fact that the program figures national average marketing prices from 2007 and 2008. The 2008 prices are not yet calculated but will include the historic price run-ups of that year.
In a state like North Dakota, there is a good possibility of a drop in corn yields that could lead to an ACRE payment as well.
Electronic spreadsheets soon will be available at www.ag.ndsu.nodak.edu/aginfo/farmmgmt/farmmgmt.htm and county Extension Service offices.
