The Rural Voice, 1983-03, Page 20FARM MARKET PERSPECTIVE
by John DePutter
U.S. OFFICIALS PREDICT AN END TO
THE 3 YEAR DOWNTREND IN FARM
INCOME. Slightly higher prices are
being paid to farmers, and farm opera-
ting costs are increasing only slightly
or declining, said a recent report from
the U.S. Agriculture Department. Wash-
ington economists cited aggessive ex-
port policies, the payment in kind
program (PIK) and Administration poli-
cies to boost the on-farm economy, as
signals that farm profits are poised for
an upswing.
LEARN TO PLAY THE CYCLES. That
was the message from a top U.S.
market analyst who spoke at a recent
Ag -Alert seminar in Ilderton. Jim Gill
told farmers that cash croppers can
make money in down markets, by
aggressively forward contacting and
hedging. (Gill himself had a substantial
portion of this 1982 production already
contracted or hedged in January and
February of 1982.) But soon, he sees an
up -cycle starting, as the government
prints more money to fuel eventual
inflation, and as the U.S. PIK program
starts to work. He suggests using
leverage and expansion (within reason)
to take advantage of "the 2 year
uptrend." Then, by 1985 or so, he may
begin preparing for another downtrend
in crop prices and in the general
economy.
FARMLAND MARKETS SHOW SIGNS
OF LIFE IN U.S.: With the payment in
kind program giving a psychological
boost to farmers, land prices in some
corn belt areas are rising. One contact
in Illinois has noticed some flat, black,
productive soil, bringing $300 above
recent lows. Two very productive farms
The world is getting smaller every day
and international events can influence
decisions you make about your farm
business. In this monthly column John
DePutter will be alerting Rural Voice
readers to trends which could affect the
farming community. Since market news
it outdated as soon as it is written due
to shifts in government policies, weath-
er. political events, etc., readers should
be aware that these articles were pre-
pared Feb. 10, 1983.
PG. 20 THE RURAL VOICE, MARCH 1983
in Illinois recently sold at just under
$3000 an acre (U.S.$), and this repre-
sented almost $700 more than recent
lows for that community. American
farmers are saving money on fertilizer,
seed, chemicals and machinery, by
complying with PIK. And the govern-
ment pays them so well (80% of
average yields paid in grain) that many
established growers will have ample
profit from PIK. Some will invest in
land. Here in Ontario we don't have PIK
benefits, nor are interest rates as low
as in Illinois. We suffer from a weaken-
ing dairy sector, losses in almost all
cash crops, and fewer government sup-
ports. The Ontario land market remains
weak. Some observers expect a 6 month
lag before the U.S. upswing filters into
the Ontario economy.
18% DROP IN OXFORD LAND PRICES
IN 1982: That is the figure recorded by
Muir Appraisal Services, a Woodstock
firm. Sales documented in 1981 aver-
aged $2,541 per acre, while sales docu-
mented in 1982 averaged $2,094. per
acre. In Kent County, the drop was
more severe, according to Appraiser
Dick Brown. He said Kent land is about
30% below its peak, with cases of land
moving at 50% below its peak value.
Both appraisers say wide variations
occur and there are few sales on which
to base trends.
HOGS: WHEN WILL THE CYCLE TURN
DOWN? Some analysts figure that the
high for the hog cycle was last sum-
mer. But very few predict that prices
will fall out of bed. Karen Curry,
Analyst for Heinold Commodities in
Chicago, said recently that cash hogs
on the Peoria market may hit around
$61 to $62 in February, and that would
mark the high for the winter. "The next
major move will be down in the spring
as supplies increase," she said. Later in
the summer, U.S. prices might move
back up "into the high $50's, or low
$60's."
CATTLE: STILL SOME BULLS
AROUND! Cattle futures contracts are
trading in the $61 to $63 area, on all
months, while the nearby hog futures
months are sharply higher than the
deferred, late 1983 contracts. This sug-
gests that traders have more confidence
in cattle than hogs. Meanwhile some
private analysts in the U.S. are pre-
dicting that spring cattle prices could
reach $65 to $70 U.S. dollars. One firm
predicted that 1983's best fat cattle
prices will be near the end of the year.
A Jan. 1 inventory count showed pro-
ducers aren't liquidating female animals
as fast as expected but the news didn't
dampen the fat price outlook for long.
USDA RELEASES MEAT OUTLOOK:
Pork production during 1983 should be
down 5% from 1982, with beef produc-
tion up 2°i°, said the U.S. government
in a recent outlook paper. Officials
predicted cash cattle prices at mid-
western terminals will average $64 to
$68 for the year. The present Omaha
top price is around $61 to $62. Officials
said grades 1-2 barrows and gilts at the
terminals should average $55 to $61
during the 12 month period. That would
compare with current levels in the $59
to $61 area.
SOYBEAN MARKETS: BETTER OPPOR-
TUNITIES AHEAD? Growers in Brazil
are pleased, while Ontario soybean
producers are not so pleased...weather
problems in South America did not
develop and the soya crop in Brazil is
looking good. Many predictions are for
a 14.5 million metric ton crop. Mean-
while, many market firms in the U.S.
are suggesting that American growers
should be at least sold out of 50% of
their 1982 production. Most firms are
willing to store the rest, and to wait
before forward contracting any new
crop production, because there is de-
cent underlying demand for soybeans
and meal.
CORN FUTURES ENJOY SOME BUL-
LISH FACTORS: Corn prices are sub-
stantially higher than harvest lows.
Traders point to improved export de-
mand, huge portions of crop going into
the U.S. reserve program which takes it
off the free market, speculative interest,
heat stress on the Argentine corn crop,
and other reasons. Since the first week
in February, however, many marketwat-
chers were expecting a correction, say-
ing the market would have to digest the
recent upswing. From a risk reduction
viewpoint, some market services were
bringing old crop sales to the 50 or
75% of production mark. Many market-
ers were also hedging small portions of
1983 production already, especially
those marketers who are willing to
"selectively" hedge on futures. "I'd be
taking advantage of Chicago futures
(Dec '83 or March '84) and pricing 10 to
15%," said Larry Schmidt, of Blunt,
Ellis and Loewi, Inc., a Wisconsin firm.
"That's not being an aggressive seller;
it's spreading your marketing out over
the year," he said in an interview at a