Volatility Likely to Rule Ag Markets in 2008

High grain prices to be partially offset by higher inputs.

Published on: Jan 25, 2008

Volatility is the key word in forecasting the grain and livestock markets in 2008. While prices for many commodities are at or near historical highs, increasing input costs will require producers to be nimble and savvy to take full advantage of prices, University of Nebraska-Lincoln experts say.

UNL agricultural economists will discuss the agricultural economic outlook in 2008 during the Cornhusker Economics Management and Outlook Conferences, which will be held in five Nebraska communities Jan. 28-Feb. 1.

"Volatility is still going to rule the day. As we look into the foreseeable future, volatility in grain prices is just going to be a part of our lives," says Paul Burgener, agricultural economics research analyst at the Panhandle Research and Extension Center at Scottsbluff.

Grain prices are at historical highs. High prices for wheat, soybeans and corn also are driving up prices for minor crops such as sunflower, proso millet and dry edible beans.
"The upshot is whatever you choose to plant there's a real good chance you're going to make money," Burgener says.

On the other hand, input costs are going up, too, including a 50% hike in fuel prices and higher chemical, seed and fertilizer prices. There may even be shortages in fertilizer and seed supplies. He suggests producers order fertilizer and seed as soon as possible to take advantage of early-year discounts and to assure they get exactly what they want.
Crop insurance premiums also are on the rise, a natural result of the increased value of crops.

On the marketing and sales side, Burgener encourages grain producers to consider locking in attractive prices in the spring. For example, corn could be priced above $4 into the early summer but could dip to around $3.25 at harvest.

"Make some of those marketing decisions and do some selling when you've got some attractive prices, even if you don't sell the whole crop," he adds. "Nothing is guaranteed. We need to be aware we are producing these crops in a global market. If China decides to produce, say, twice as much corn that could influence us dramatically."

Profits are to be had in the livestock business as well, but there, too, producers will have to manage carefully, says Darrell Mark, UNL livestock marketing specialist.

Fed cattle prices have been at record highs on average in 2007, and prices in 2008 could be just as high, he said.

"Overall 2008 looks to be a pretty good year," Mark says. "That doesn't necessarily imply profitability" for producers, though.

As with crops, increasing input costs will be a challenge. Most significant are feed costs, with corn prices, in particular, being driven higher by ethanol demand.

"Feed prices will continue to be high but, more importantly, will be volatile," Mark says.

That volatility will make risk management a key component of cow-calf producers' operations. Producers will want to consider combining futures and options and making adroit use of livestock insurance options to protect themselves.

The trade picture is generally improving, though Japan and South Korea still have limits on U.S. beef imports. About 50% of the American beef export business lost in 2003 with the discovery of BSE in the United States has bounced back.

"Producers need to be increasingly aggressive about trying to target their cattle" to the export market. Verification is a key element of that, and as producers head into spring calving, they want to think about changing how they verify age, source and certain management practices.

On the hog side, prices are likely to be 2 to 3% lower than in 2007 as pork production is forecast to increase. Rising feed costs--both corn and soybean meal--will be a factor here, too. Hog producers who've weathered recent downturns in the industry have done so because they "were judicious about risk management," Mark says.

"It's the producers that have not looked at those hedging opportunities that are going to be struggling more," he adds. "Some are going to continue to make money into 2008 but probably only if they had already hedged in August-September of 2007."