Agribusiness - Timely Topics

Deficit and Spending Reductions Could Affect Utah Agriculture

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Fri, 30 Sep 2011 00:00:00 MST

The Greek philosopher Heraclitus said, “The only constant is change.” Agriculture has always been risky, but those risks have changed over time. Some risks have decreased due to better technology or management practices. Others have increased, partly due to changing economic stability, heightened commodity price volatility, or uncertain institutional involvement. For many years, government programs have been available to help agriculture producers mitigate the risks they face and continue to be successful. Like risk, government programs are continually changing and evolving, increasing and decreasing, and many of these changes have and will continue to directly affect the agricultural industry.

Reducing the national deficit has become a topic of much discussion among government officials over the past few months. In the latter part of September, President Obama announced an economic growth and deficit reduction plan entitled “Living Within our Means and Investing in the Future.[i]” As part of a reduction in mandatory programs spending, the Obama Administration proposes to cut spending in the agriculture sector by $33 billion over the next ten years by eliminating direct payments, reducing crop insurance subsidies, and reducing conservation funding.

According to USDA Risk Management Agency data, over 900 crop insurance policies were sold to Utah producers insuring over 155,000 acres for the 2011 crop year. The total premiums for these policies amounted to over $4 million, but subsidies of nearly $3 million left Utah producers’ cost significantly lower.[ii] Under the President’s plan, any premium subsidy over 50% would be reduced, contributing to a reduction of the crop insurance program of over $8 billion over the next decade. According to Farm Service Agency data, advanced direct payments for Utah in 2011 amounted to over $187,000.[iii] Under the deficit reduction plan, these payments would be eliminated.

While these changes are currently only proposals for change, it is unlikely that the agriculture industry will go unscathed by a finalized deficit reduction plan. Changes in these government programs will affect today’s farmers and the risk management strategies that will be successful in the future. In the backdrop of an ever-changing society , it is imperative for farmers to be informed and knowledgeable about changes not only in their own operations, but in agriculture industry as a whole.

[i] Read the President’s plan here: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/jointcommitteereport.pdf

[ii] Data available here: http://www3.rma.usda.gov/apps/sob/

[iii] Data available here: http://www.fsa.usda.gov/FSA/webapp?area=home&subject=dccp&topic=dpr

Achieving Success in Agriculture Conference to Help Young, Beginning Producers Prepare for Success

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Tue, 30 Aug 2011 00:00:00 MST

Some things in agriculture never change. It has always taken hard work and commitment to raise animals and grow crops. But some things do change, like prices, land values, weather, technology, and the economic stability of the country. The list could go on and on. With increasing volatility in the agricultural industry, it is not sufficient to just plant a crop and watch it grow. Today’s farmers need to know how national and global events could affect their local operations, how they can use technology and other programs available to reduce their risks, how to use marketing tools to get the most for their efforts, and, in general, how to achieve success in an ever-changing agricultural industry.

As part of the College of Agriculture sponsored Ag Month, the Department of Applied Economics has organized a conference to address some of these issues. The Achieving Success in Agriculture Conference will be held September 16-17 and is designed to provide agriculture students and young, beginning agricultural producers with knowledge and tools to help them achieve success in their agricultural business endeavors. The conference will focus on topics such as business planning, small farm profit, marketing, insurance products, Farm Service Agency beginning farmers programs, excel in agriculture, taxes and more. Several young producers will share their experiences related to developing their successful businesses and conference attendees will be able to participate in a question and answer discussion with the panel members to provide additional insights.

This and other educational opportunities can help today’s young farmers be more prepared for the future. For more information about this conference, please visit: apecextension.usu.edu/asac.

Vegetation Index Pilot Program for Pasture, Rangeland, and Forage

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Tue, 26 Jul 2011 00:00:00 MST

By Sarah Drollette and Dillon Feuz

A new risk management tool has become available to Utah agricultural producers for pasture, rangeland, and forage. The Vegetation Index pilot program for pasture, rangeland, and forage was available in many counties of neighboring states for the 2010 crop year, but was not available to any Utah counties. Starting with the 2011 crop year, this program has been expanded to all counties in Utah and preliminary studies show this may be a useful tool for Utah producers.

The Vegetation Index utilizes satellite remote sensing data obtained from the U.S. Geological Survey Earth Resources Observation and Science data center. The data, called the Normalized Difference Vegetation Index (NDVI), essentially measures the greenness of the vegetation in pre-defined grids approximately 4.8 by 4.8 miles. The Vegetation Index uses historical NDVI data since 1989 to establish a normal NDVI. Current values are then compared to the normal NDVI to determine losses for the grid.

The insurance can be purchased for three-month time periods called index intervals. Producers can select one or more index intervals that best match his growing season and individual management practices. Current NDVI data is collected for each index interval and compared to historical data for the same intervals. If current NDVI values deviate from historical values, an indemnity payment would be paid based on the differences.[i]

For producers who previously have not had many insurance options for mitigating risks relating to pasture, rangeland, or forage production losses, this may be a beneficial program. However, it is important to note that the Vegetation Index is an area-based program. It insures against vegetation losses across a grid, not losses to an individual producer. Hence, it is important for producers to review the historical indices relating to their individual farms or ranches when deciding if the Vegetation Index a useful program for their operation.

Although the insurance program has only been around since 2008 in some pilot counties, NDVI has been measured since 1989. Using that data, and using the same premiums for every year, the total premiums paid, and the total indemnity payments received were calculated for a typical ranch in western Wyoming grazing on Bureau of Land Management range. If this insurance program had been available since 1989, the model ranch would have received far more money through indemnity payments than they would have paid in premiums.

At the 70% coverage level, the typical ranch would have received a 300% return from the insurance. In other words, for each dollar spent on insurance premium for the pasture, rangeland and forage insurance, the ranch received $3 in indemnity payments over the historic time frame. For the Western Wyoming ranch, the 80% and 90% coverage levels had returns of 244% and 169% respectively. If the Utah range data is similar to the western Wyoming data, then this insurance product may be very attractive to producers.

[i] For more information about the Vegetation Index Pilot Program, visit the RMA website (www.rma.usda.gov) or contact an insurance agent (Agent locator: www.rma.usda.gov/tools/agent)

New Common Crop Insurance Policy

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Wed, 01 Jun 2011 00:00:00 MST

Crop insurance is a common risk management tool available to agricultural producers. The USDA’s Risk Management Agency (RMA) provides crop insurance for over 100 crops and RMA crop insurance has been available to Utah agricultural producers for many years. But now the insurance process may be a little easier. In an effort to simplify the program, several of the separate crop insurance policies are now combined into one Common Crop Insurance Policy (CCIP).

In the past, different policies were available for yield protection and revenue protection. Actual Production History (APH) policies were designed to protect producers against yield losses, but did not take into account price fluctuations. Revenue policies, including Crop Revenue Coverage (CRC), Revenue Assurance (RA), and Income Protection (IP) policies, insured producers against losses to revenue due to price changes and/or yield losses.

According to RMA data, over 100,000 acres in Utah have been insured through RMA crop insurance programs each of the past 10 years and over 155,000 acres were insured last year.[i] Of the 955 policies sold in Utah for the 2010 crop year, 864 of those policies were Actual Production History (APH) policies and 82 policies were Crop Revenue Coverage (CRC) policies.

Beginning in the 2011 crop year APH, CRC, RA and IP policies have been combined into the Common Crop Insurance Policy. Three protection options are available through CCIP: Yield Protection (YP), Revenue Protection (RP), and Revenue Protection with Harvest Price Exclusion (RP-HPE). Previous insurance policies will be converted to the Common Crop Insurance Policy and one of these options. APH policies will be converted to the Yield Protection option and Crop Revenue Coverage and Revenue Assurance policies (CRC and RA) will be converted to the Revenue Protection option. Income Protection and Revenue Assurance policies without the Fall Harvest Price option will be converted to the Revenue Protection with Harvest Price Exclusions option.

The new Common Crop Insurance policy is available for the following crops: Barley, canola/rapeseed, corn, cotton, grain sorghum, malting barley, rice, soybean, sunflower, and wheat. For more information on CCIP or availability in Utah or to sign up for crop insurance, producers should contact a crop insurance agent (www.rma.usda.gov/tools/agent.html).

[i] All data used in this article are available through the RMA website: www.rma.usda.gov

LGM Dairy Insurance

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Tue, 07 Sep 2010 00:00:00 MST

In 2008, USDA’s Risk Management Agency announced that the Livestock Gross Margin for Dairy Cattle Insurance Policy would be available to Utah dairy producers. This insurance policy is designed to protect dairy farmers from a loss of a gross margin between the revenue from milk produced and the cost of feed. Of course, the insurance policy has a premium cost that may have deterred many dairy producers from purchasing LGM Dairy insurance two years ago. However, given the volatility of the milk and feed markets over the past two years, producers may now be wondering if purchasing the insurance would have helped or hurt them.

The LGM Dairy insurance policy uses futures prices for milk, corn, and soybean meal (adjusted for the state-specific basis) to calculate expected and actual gross margins for producers’ dairies. A gross margin guarantee is calculated as the expected gross margin minus the deductible. If the actual gross margin is less that the gross margin guarantee, an indemnity payment is received. The premium is calculated based on the expected gross margin and the deductible level.[i]

Gross margin guarantees, premium costs, and indemnity payments were calculated for a fictitious dairy in Cache County, Utah for the past year. These numbers were calculated using a deductible level of zero and are based on a dairy producing 1560 cwt of milk each month (“target marketings”) and feeding 20.5 tons of corn and 6 tons of soybean meal each month (“target feed”). The premium cost for each insurance period was over $10,000, but the indemnity payments were greater than the premium cost for all insurance periods except the most recent three. This means that even after the premium payment, the example dairy ended up being better off for nine of the twelve insurance periods and was better off overall even given the three months when indemnity payments were less than premium costs.

So, would purchasing LGM insurance have helped or hurt dairy producers over the past year? While exact numbers would be different for each individual dairy based on specific production, feed and deductible information, this example suggests that some producers would have benefitted 9 of the past 12 insurance periods from a purely pecuniary perspective. However, each dairy producer should take into account non-pecuniary costs and benefits of purchasing LGM insurance when deciding whether or not to include it in their risk management strategy. For example, a producer should consider the opportunity cost of the time that would have been spent in the application process or the possible benefit of knowing that, despite how prices moved, he would have received at least the minimum of the gross margin guarantee.

[i] Premium quotes can be obtained using the premium calculator available on the RMA website: http://www.rma.usda.gov/tools/premcalc.html

What Does the New Year Hold for Beef Producers?

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Fri, 01 Jan 2010 00:00:00 MST

Dillon Feuz

This past year is probably one that most cattlemen are glad to have over and I am sure are looking for better things in 2010. After averaging near $93 per cwt. for fed cattle in 2007 and 2008, prices declined to only average $83 in 2009. After a disastrous 2008, where feedlots lost on average over $100 per head, that was followed by only a slightly less disastrous 2009 where my model would predict feedlots lost about $85 per head. Those losses are taking a toll on the feedlot industry. If 2010 is not a better year, there could be a large number of feedlots that will not survive.

The cow-calf industry didn’t fair much better this past year. Winter hay feeding cost for the 2008-09 winter was probably the highest many producers had seen. Early summer contracting opportunities were few to be found and not that attractive of a price. Summer video auction sales were generally down in volume and price from the prior year. When fall came, prices were no higher, and in many instances, were lower than the prior year. It is likely that most cow-calf producers will have been less profitable in 2009 than they were in 2008. Perhaps that sentence was poorly worded: a better choice of words might have been many cow-calf producers lost more money in 2009 than they did in 2008.

What hope is there for 2010? You are probably tired of hearing this, but much of your hope for better prices will be determined by the overall economy. If people are still out of work or concerned they might lose their job, it is a good bet they won’t be spending a lot of money on steak. Not only will consumers continue to buy cheaper beef products rather than higher priced beef products, some will also switch more of their meat purchases to some of the other, cheaper meats (pork and poultry). Without some help from beef demand, any price rally may be short term and tempered by the inability to move beef.

However, with that being said, the beef industry is in a good position as far as supply goes. The actual USDA numbers for January 1 inventory will not be released until February, but the beef and dairy cow herds in the US are sure to be smaller than a year ago. Smaller herds mean fewer calves and feeders for this fall, so that should help calf prices. Year over year cattle on feed numbers should also tend to be smaller and so we should be seeing less beef on the market. Again, this should tend to support beef prices at higher levels than were seen in 2009 so long as beef demand is at least stable.

There also appears to be some positives on the export market that could also support higher prices. Some global economies may be recovering quicker than the US economy and that could help exports of beef. Pork and poultry exports could also increase. That will tend to support higher US pork and poultry prices and higher pork and poultry prices help support higher beef prices.

This longer term picture for all of 2010 just described is what I would call cautiously optimistic. The US economy is the biggest unknown and I think worst case scenario is that it will not improve much from the present condition. I don’t for see a turn for the worse in the coming year. Therefore, if domestic beef demand can remain stable, beef export demand improve and with a tight supply scenario, there should be some price improvement on the horizon.

In the short term, fed cattle prices have recovered about $5-6 per cwt. from the lows in early December. If the market could put on another $3-4, feedlots should be breaking even. With the winter weather conditions in the northern plains, feedlot gains have been reduced and fed cattle marketing weights are decreasing. Lighter fed cattle weights coupled with reduced fed cattle marketings is adding strength to this market.

For ranchers who have retained calves to sell them after the first of the year, that market has gained about $10 per cwt from fall lows in October to prices reported last week. I would think based on current forage and grain prices, that some one who has fed calves for 60-90 days could sell them in the current market and have a positive return to that backgrounding program. It is likely that calves sent to wheat pastures or corn stalks, will also show a positive return when marketed over the next couple of months.

Feeding cull cows this winter should also show a positive return. Cull cow prices have strengthened $4-5 per cwt. since November. Those prices will probably continue to increase for another couple of months. There could probably be a positive return to feeding cows 90 days on a primarily hay ration as well as a positive return from feeding cows for a larger rate of gain using a corn based ration.

If these positive price trends that we have seen in the last couple of weeks can continue into spring, not only might cowboys be seeing green grass again, but they may also have some green to put in their pockets.

2009 Custom Rates Survey Report

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Thu, 31 Dec 2009 00:00:00 MST

Many agricultural producers in Utah hire others to perform some custom farm work in order to accomplish all the tasks necessary to ensure success in their agricultural business. Similarly, some farmers also provide custom work for others. The purpose of this report is to provide agricultural producers with current information regarding rates for custom farming operations in Utah.

Procedure

The custom rates reported in this publication were obtained from surveys distributed at crop schools and sent by mail to 299 farmers, custom operators, agricultural bankers and other agricultural professionals. The response rate for the survey was 15%. Table 1 summarizes the percent of survey respondents categorized as agricultural producers, custom operators, bankers or other agricultural professionals. In some cases, survey responses were disregarded if it was clear the respondent interpreted the information in a different manner than the majority of the other respondents.

Reported Rates

The custom rates reported are those charged or paid during 2009. An average rate for all responses is given as well as a range of the responses including the lowest rate and the highest rate reported. The number of responses for each custom operation is also provided. In most cases, the number of responses was less than ten and for many specific custom operations only one response is reported. More observations would be necessary to perform further statistical analysis. Because of the low survey response rate, custom rates reported in this publication should be used only as a guide. Actual rates in different areas of the state are likely to vary somewhat due to different field conditions, variations in supply and demand, location and other area-specific variables.

Table 1. Respondent Information
	Percent of Respondents*
Agricultural Producer	27%
Custom Operator	27%
Agricultural Producers and Custom Operator	16%
Banker	2%
Custom Operator and Banker	13%
Other	16%

*Percentages may not be exact due to rounding.

The full 2009 custom rates report is available at: https://extension.usu.edu/agribusiness/htm/budgets

Tips for Turbulent Times

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Mon, 10 Aug 2009 00:00:00 MST

The turbulence in the general economy has far-reaching impacts on agricultural producers. The volatility of commodity prices has left many producers worried about the financial stability of their operation. In uncertain times, when financial risks seem to be at their peak, it becomes even more crucial to make wise decisions and adequately manage those risks. The following are some tips to help agricultural producers manage risks and remain financially sound in these turbulent times.

1. Have a Written Business Plan. An old adage says, “If you fail to plan, you plan to fail.” It is important to have a well-written business plan that is well understood by all members of the operation. The business plan should include long-term and short-term goals for the operation and specific plans that will help you achieve those goals. Given the unpredictability of agricultural markets, it is imperative to have several alternative plans, including strategies for worst-case scenarios. It is also wise to have an exit strategy and know when continued operation is no longer profitable or beneficial.

2. Maintain Good Financial Records. In difficult times it is even more important to know where you are and where you are going. A set a good financial records- including balance sheets, income statements, cash-flow statements, detailed budgets, etc.-will help you understand your operation’s financial position and put you in a better position to combat oncoming difficulties. If necessary, seek opportunities to become more educated and improve your record keeping, finance and accounting skills.

3. Practice Good Financial Management. Understanding your financial position and having goals does little good unless you use that knowledge to make sure you are moving in the right direction and reaching your goals. For an operation to be successful, good financial management (especially in turbulent times) includes reducing debt, maintaining or increasing liquidity, lowering your leverage ratio, maintaining cash and credit reserves, and increasing your equity and overall profitability.

4. Analyze your Enterprises. Take a close look at the different segments of your operation. Identify those enterprises with a history of lower profitability or unprofitability. Consider scaling back your efforts in those areas or eliminating them altogether and focusing on your most profitable enterprises.

5. Know your Lenders. Given the backdrop of recent upheaval in credit markets, it is critical to know and trust your lenders. Choose lenders that are familiar with your industry and are committed to and understand your business, not just those that have fewer requirements, lower rates, or easier loan attainment. Your lender can become a valuable source of advice and help as you face unfavorable market conditions.

6. Lower Unnecessary Expenditures. It is always a good idea to seek ways of lowering expenses while maintaining or increasing revenue and in difficult times it is even more imperative to do this. Minimizing family living withdrawals may be necessary and non-essential capital expenditures should be delayed. All capital purchases or improvements made should pay for themselves either through decreased expenses elsewhere or increased revenue.

7. Utilize Risk Management Tools. There are many risk management tools available to help you mitigate your production, marketing, and financial risks including government insurance programs, government support programs, hedging with futures markets, and others. Utilizing such tools can help you ensure the success of your operation throughout these challenging times.

LGM Dairy Insurance Available in Utah

Sarah.Drollette@aggiemail.usu.edu (Sarah Drollette) — Tue, 05 May 2009 00:00:00 MST

Last year, USDA’s Risk Management Agency announced the emergence of a new insurance product called the Livestock Gross Margin for Dairy Cattle Insurance Policy. This relatively new insurance product is available to dairy producers in many states as a risk management tool. LGM-Dairy is now available for sale to Utah dairy producers, but many producers may have a few questions about what the LGM Dairy insurance policy is and how it works.

The Livestock Gross Margin Dairy insurance policy is an insurance product designed to protect dairy farmers from a loss of a gross margin between the revenue from milk produced and the cost of feed over the eleven-month insurance period. If purchased, LGM promises an indemnity payment to the dairy producer if the actual gross margin (difference between actual milk revenue and actual feed costs) is different than the gross margin guarantee for the insurance period. The gross margin guarantee is the expected gross margin minus a deductible, where the deductible can range from zero to $1.50 per hundredweight of milk. Thus, if the deductible is zero, the gross margin guarantee is the same as the expected gross margin.

The expected gross margin is calculated using futures prices for milk, corn, and soybean meal and state-specific basis information for milk and corn. Expected prices to be used in this calculation are published on the RMA website for each insurance period available.[i] To calculate the expected gross margin, the producer must submit a “Target Marketings” and “Target Feed” report. These are simply the quantity of milk to be sold each month and the amount of feed to be fed each month. The expected milk revenue is calculated by multiplying the expected price given for each month by the quantity of milk to be sold each month. The expected costs of feed are calculated by adding the amount of corn to be fed multiplied by the expected corn price and the amount of soybean meal to be fed multiplied by the expected soybean meal price. Other types of feed can be converted to corn and soybean meal equivalents to calculate feed costs.[ii] The expected gross margin is then calculated by subtracting the expected feed costs from the expected milk revenue. (Using the RMA-published expected prices, expected gross margin information for an example dairy marketing 1560 cwt of milk and feeding 20.5 tons of corn and 6 tons of soybean meal is shown in the associated graph).

The actual gross margin is calculated using the same target feed values used to calculate the expected gross margin. However, the actual milk marketings for each month are used instead of the expected milk marketings. The actual prices used for each month are also based on futures contract prices for milk, corn, and soybean meal and basis information for milk and corn. These prices are published by RMA along with the expected prices. The actual gross margin is calculated the same way as the expected gross margin, only using the actual prices instead of the expected prices and the actual marketings instead of the expected marketings for milk.

If the dairy producer chooses a deductible value above zero, the gross margin guarantee is calculated by subtracting the deductible amount from the expected gross margin. If the actual gross margin is less than the gross margin guarantee, the producer would receive an indemnity payment equal to that difference.

The LGM insurance policy is very similar to market options. Both use futures prices for commodities to protect the producer from losses, but do not limit the producer from benefitting from a gain. However, there are some key differences. While a producer would need to purchase both put and call options to protect against adverse changes in the prices of both milk and feed, LGM insurance bundles these together. Thus, a producer does not have to worry about everything associated with purchasing a put option for milk and separate call options for different types of feed to ensure his revenue exceeds his costs; he can purchase an LGM Dairy insurance policy that insures that difference. In addition, the producer is not bound to the fixed amounts of options, but can insure any amount of milk to better represent his actual dairy production.

LGM Dairy insurance policies can be purchased on the third to last business day of each month. To purchase an LGM policy, the producer must complete an application, including a target marketing and feed report.[iii] These, along with premium payment, must be submitted with a USDA-authorized insurance agent[iv] by the sales closing date-third to last business day-of the month for coverage to begin one month later. For example, if a farmer wanted to begin coverage in June, his application and premium payment needs to be filed with an insurance agent by the third to last business day of April. The premium is calculated using a premium calculator and based on the target marketings, expected gross margins and deductibles values. Step-by-step instructions for premium calculation are available through the RMA website.[v]

In the end, LGM Dairy insurance is another tool that dairy producers can use to manage the many risks they face. As always, it is important for each producer to determine the benefits and costs of available risk management tools and determine which tools are best for his own unique dairy. For some producers, the safety net resulting from an LGM Dairy insurance policy may provide the peace of mind needed during these volatile times.

[i] To view the prices used in calculating the expected and actual gross margins, visit the following webpage and then follow the links to specify state and type of insurance (i.e. Dairy cattle, Cattle, or Swine): http://www.rma.usda.gov/tools/livestock.html For more information about how these expected prices are calculated, see Livestock Gross Margin for Dairy Cattle Insurance Policy Questions and Answers, pages 5-6, available at: http://www.rma.usda.gov/policies/2009/lgm/09lgmdairyq&a.pdf

[ii] Not all feeds can be converted to corn and soybean equivalents; hay cannot be added into the feeds costs calculation. Information on feed conversion is available in the LGM-Dairy Commodity Exchange Endorsement, page 8, which can be accessed at the following web address: http://www.rma.usda.gov/policies/2009/lgm/09lgmdairycee.pdf

[iii] The application for an LGM Dairy insurance policy is available at: http://www.rma.usda.gov/handbooks/20000/2009/09LGM-Dairy-Handbook.pdf

[iv] To find a local agent, follow the links at: http://www3.rma.usda.gov/apps/agents/

[v] View the step-by-step instructions at: http://www.rma.usda.gov/policies/2009/lgm/09lgmdairypremcalc.pdf

2008 Cattle Market Review and Outlook for 2009

dfeuz@econ.usu.edu (Dillon Feuz) — Mon, 05 Jan 2009 00:00:00 MST

As we finish up 2008, what a year it has been. The collapse of Wall Street and the impact that had on the commodity markets was likely what most people will remember. But before that occurred several commodity markets also reached new historically high prices.

The Dow Jones Industrial Average started the year around 13,000. It trended lower for most of the year amid growing concerns for the overall economy. In October and November it dropped sharply and be came extremely volatile. It closed around 7,500 in mid November, before gradually climbing back to around 8,500 at the end of the year.

Crude oil prices started the year around $95 per barrel. Those prices increased to record levels of $145 per barrel in July. However, as general economic concerns increased and more people became convinced we were in for an extended recession, oil demand and speculation of future oil demand evaporated quicker than water in the Arabian dessert. Oil prices ended the year under $40 per barrel, equivalent to price in 2004.

One thing that became apparent this year is that corn prices and oil prices are directly linked through U.S. ethanol, I mean energy, policy. Corn price began the year around $4.50 per bushel. Price rose to over $7.50 per bushel in June. However, with falling oil prices, corn also experienced a significant adjustment. By the end of November, corn was priced under $3.00 per bushel before rebounding to back over $4.00 per bushel to end the year.

Choice box beef prices started the year just over $145 per cwt. In July prices were over $170. Prices had not been that high since the fall of 2003 when cattle trade with Canada was banned. However, just as Wall Street, Oil and Corn fell, so did beef prices. By December, Choice box beef was under $145 per cwt.

Fed cattle price started the year just over $90 per cwt. with considerable optimism for higher prices for most of the year. Prices did trade over $100 in July, but then like the other markets, they have gotten ugly this fall. Price in October and November were in the low $90 range and has now fallen to the low $80’s to end the year. Buying feeder cattle and corn at the average market price and selling fed cattle at the average market price was not profitable in 2008. Feedlots likely lost over $100 per head on average for 2008. Those losses resulted in lack luster demand for feeder cattle in the fall of 2008, particularly for lighter weight feeders.

Feeder cattle prices held together quite well for the first seven months of the year at levels similar to 2007. Then prices declined rather sharply into fall and winter. Nebraska feeder steers, 750 lbs., were at $100 in January, increased to near $120 in August, and at the end of December had declined to under $95 per cwt. Steer calf prices, 550 lbs., started the year at $120, increased to over $130 in August, and then fell to under $110 by December.

Looking ahead to 2009, I don’t have much of a clue what will happen to the general economy. However, since the national media will no longer have President Bush to kick around, and since they are enthralled with President Elect Obama, it is likely we will see far less negative economic news reported and far more positive news reported. Because many people will therefore think the economy is better, they will start acting that way, in other words they will spend money they don’t have so that we can be set up for another economic crisis sometime in the future. But, I digress. Why this is important, is I think the stock market will become less volatile than it has been the past three months and that will calm fears in the commodity markets. When that happens, each commodity will again be trading based on its own fundamentals rather than all markets being lower because the stock market was lower on a given day.

So, if we assume that I am right about the stock market stabilizing, then here is my outlook for corn and cattle in 2009. Corn prices will remain volatile. In the past, corn prices hovered around commodity price support levels only occasionally spiking up due to a severe drought or perhaps a substantial increase in exports. Prices will remain well above the price support level and will continue to be influenced by oil which will all lead to greater volatility than what was seen a few years ago. Prices will likely average in the mid $4 range but I would not be surprised to see prices move $1 lower or $1-2 higher within the year.

Cattle on feed numbers are below a year ago, and the cow inventory declined in 2008. From a supply side, fed cattle and feeder cattle prices should be higher. However, with the economy in a recession, consumers will likely buy less high priced beef. Furthermore with a stronger US dollar, our exports may decline in 2009. These two factors will pressure fed cattle prices lower. With the large losses feedlots have occurred, I don’t expect them to chase feeder cattle prices higher anytime soon. So here is my crystal ball cattle outlook: fed cattle should strengthen into the upper $80’s and trade in the low $90’s for much of 2009; Nebraska 750 lb steers will likely trade in a range of $95-105; and fall 2009 calf prices may only be slightly higher than 2008 prices, or around $110-115 in Nebraska. Calf and feeder cattle prices in Utah will be $10-15 per cwt. lower than those in Nebraska. Fall 2009 calf prices may struggle to reach $100 per cwt.