Published: November 26, 2008 04:49 pm            

Grain Angles: Driving home cost of production

Originally published in the Nov. 14, 2008, print edition.

The corn and soybean markets could go either way given the uncertainty in the world economy. There are several things that are affecting the direction of the grain market. It will take some time to digest the further impact to the grain market.

Supply and demand reports and the final production report in January will be key pieces of information as we begin to plan for the year ahead. It is easy to say that the corn market could be lower because of changes in ethanol, livestock and export demand, as well as the price of oil but generally something comes into the picture that was not expected.

The soybean market should be strong because of smaller yields in the United States but what impact will South America and a sluggish economy have on soybeans around the world.

Short of sounding like a broken record and trying to encourage something that can be a tedious process, cost of production will be important this year. Unless all advice was avoided this summer some high input costs have been locked in for next year.

The current price of corn and soybeans is less than the cost to grow it next year. There is a fair amount of grain sold for next year which will help soften the crunch that could take place in 2009. There are several services available to help determine your cost of production and manage business decisions for 2009.

It is easy to discount the value of knowing the cost of production but with so many influences in the grain market it has risen to the top of things to do and be well versed in your costs. Knowing all costs, not just a selected few, is important because it is easy to know the big three or four but it is the rest of the costs that will hurt if not understood.

The cost of producing an acre of corn next year is estimated to be over $800 and soybeans over $600. The largest and only database of management information is maintained by the University of Minnesota and the Minnesota State Colleges and Universities systems. Participating in their program is a cost-effective way to access the information. There are many private and public sources of help; it just takes a call to get started.

Corn and soybeans have shown some strength in the last two weeks. Corn is up a few pennies and soybeans are up just about 50 cents. Generally, corn yields have been good and that should show through in coming U.S. Department of Agriculture reports. The opposite is true for soybeans as the yields have been disappointing in areas of the country.

The important factor to price support is continued demand for our commodities. We know there are many areas that need our commodities and will always use them, but we do not know at what level. The increasing value of the dollar and economic uncertainty around the world will impact supply and demand and then prices.

Corn seems to be tied tightly to crude oil even after everything else that has gone on. We know also that the USDA has thrown a few curve balls recently and there is no reason to rule out another zinger anytime. The prospects of the South American soybean crop will be important throughout the winter.

There is a lot of uncertainty that is uncontrollable so it is important to control what you can. Cost of production and managing that is one thing we can all do.

        

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