About the only thing farmers can depend on as they prepare for the 2008 cropping season is volatility.

Energy and other production expenses likely will rise and fall with the trend decidedly upward into summer. Prices, too, may dip and climb as weather, actual planted acres and foreign competition affects markets.

Managing risk in this uncertain market has never been more important, said John Miller, Southwest Agribusiness Consulting, addressing the 51st annual meeting of the Plains Cotton Growers Inc., recently in Lubbock.

“Price volatility is tied to energy,” Miller said. But other forces also influence commodity markets: planting intentions, for instance.

Miller said the latest USDA forecasts have corn planting intentions at 86 million acres, down 8 percent from 2007. Sorghum at 7.4 million acres is off 4 percent from last year, but soybeans at 74.8 million acres are up 15 percent. Wheat is also up, 63.8 million acres, a 6 percent increase.

Cotton acreage at 9.4 million acres will decline 13 percent; rice, at 2.77 million acres is unchanged and hay acreage at 60.6 million is off 2 percent from 2007.

Miller said the increases add 6 million acres to the nation’s ag production capacity, according to USDA, and he’s uncertain where all those acres come from. Conservation Reserve Program acreage and pastureland converted into row crop production account for part but not enough to total 6 million, he said. “We still have questions about where the acreage comes from.”

Acreage shifts add to commodity price volatility. “Wheat has been the most volatile,” Miller said. “Carryout at 242 million bushels is tight. Acreage had tapered off for the last two decades.”

He said last year’s corn yield, 151 bushels per acre, was not enough to ease supply concerns. “An 11 percent carryout is too tight.”

And planting intentions may not be set in stone. “The South and Midwest are wet, so some of their corn acreage may go to beans,” he said. “But some abandoned wheat acreage may go to soybeans this spring.” A lot of planting decisions may be made at the last minute.

Miller said Soybeans are still trading at high levels. “Carryout could drop to zero. China’s soybean use has gone through the roof.”

On the flip side, Miller said the 9.4 million-bale cotton carryout was “bearish,” but the 9.39 million-acre planting estimate is neutral. “Acreage is down, but yields are up,” he said. “Domestic use has fallen dramatically and exports have declined some.”

Countries that used to import cotton are now exporting. “India has increased production and dropped imports dramatically. China has witnessed yield increases and imports have leveled off.”

Japanese cotton imports have also declined, Miller said.

Advantages from the lower dollar may be partially offset by more competition. Still, dollar cotton is possible. “Electronic trading has increased volatility (in cotton markets). New players are coming into the market, moving money from equities into agriculture. The lack of liquidity, however, restricts producer opportunities.”

He said grains will continue to compete for acreage and growers can look for any planting delay or production problems to spike rallies. He said livestock feeders “holding out for cheap corn will be disappointed.”

Corn export activity is a “continued surprise,” Miller said. “The low dollar is helping foreign buyers. And a short 2007 crop in Europe, Russia and Australia changed the import/export dynamics. He said corn exports in April totaled 1.4 billion bushels, up from 1.2 billion for the same period last year. Export estimates are for 2.4 billion bushels.

Wheat exports totaled 1 billion bushels compared to 724,000 last year. Soybeans, at 839,000 bushels compares to 860,000 a year ago. Estimates indicate 1 billion bushels to be exported.

Miller said cattlemen might not see a typical spring price rally this year. “Numbers are relatively strong despite higher feed prices.”

He said cattle markets will respond to corn prices. Demand also may fluctuate with layoffs and recession concerns.

CRP acreage also influences commodity markets. “The trade is obsessing over CRP, wondering whether landowners will keep or not keep certain acres in the program. Two million or so are due to come out in 2008.”

He said South American soybean production plays a role in market flux. “It will take decades for South America to produce all the beans (the market) needs because of political instability. Growth will continue, but not at the pace expected three or four years ago.”

Miller said ethanol plant construction, a key factor in grain price increases, has slowed. “We still have a number of plants under construction, but more plants in the Midwest are competing with each other.” He said some construction likely would move out of the Midwest and closer to big cities.

Supporting the demand for grain-based ethanol may pose problems as well. “Where is the land?” Miller asked. Mandates call for 15 million gallons of corn-based ethanol and 15 million gallons of cellulosic production. To hit that last target “is a stretch,” he said. “We need a lot of research and funding and for now tonnage per acre still favors corn.”

He said USDA estimates depend on improved technology to reach grain production goals. He said the industry needs more mandates to keep ethanol promotion going.

In five years, current mandates call for 12 billion gallons of ethanol production a year. That will require 4.5 million bushels of corn.

Rising corn prices also lower margins for ethanol and Miller said $5 corn is about the limit to make ethanol viable at $2 to $2.25 per gallon.

In the meantime, farmers can expect energy prices to continue to rise, although an economic slowdown may “stagnate demand. Currently, supply is adequate. Prices are spurred by fear. And OPEC is reluctant to formally announce a production increase.”

He said worldwide demand for diesel continues to strengthen. “Prices will be sensitive to any supply stretch or any refinery shutdown. Expect an upward trend into summer.”

Gasoline prices also will remain strong. “Weakness depends on a slowing economy but the market will test consumers at $4 a gallon.”

That market will be sensitive to hurricanes, he said.

Any relief in natural gas prices will be “short lived.”

He said economic indicators are not favorable. “The agricultural industry expects a recession,” he said. “The dollar value is the lowest in memory. But that helps agricultural exports.”

Miller said farmers should get used to uncertain times. “Volatility in grain, fertilizer and energy prices is here to stay. Financing will be crucial, so stay in touch with your lenders.”

He said rising transportation and production costs make budgeting much more difficult and like trying to hit a moving target. “Producers and grain users must learn to manage futures markets and basis to cope with greater risks.”

email: rsmith@farmpress.com