Several factors will determine success of farm markets - Ag front: War, gas prices, weather could make or break season

www.pal-item.com Friday, February 28, 2003 By Don Fasnacht Staff writer

Farmers have to predict the future based on the unpredictable -- the weather, the price of oil and natural gas, the size of the soybean crop in South America.

Throw in the possibility of war, and predictions become all but impossible.

But Purdue University economist Chris Hurt does the best he can to see the agriculture markets for the year ahead. He was here Thursday to give his forecast to local farmers at a Wayne County Soil and Water Conservation District workshop.

"All markets are 'anticipatory markets,'" Hurt said. "Right now, the markets are anticipating bad things."

The major bad thing is war with Iraq. The anticipation is the problem, Hurt said.

"Once the decision is made to invade, we'll know a lot more within about 36 hours," Hurt said.

"There will be a lot of human tragedy, but the markets will stabilize," Hurt said.

War won't affect the weather, but it may have a profound impact on petroleum and gas prices.

Hurt pointed out that the day before the 1991 Gulf War began, crude oil was selling for $30 per barrel. The day after that invasion, it dropped to $20 per barrel. The price of unleaded gasoline dropped 27 cents per gallon in 12 hours, Hurt said.

Currently, the volatility of natural gas is the ringer in predicting corn profits for the coming season. An increase in natural gas prices last weekend increased the price of anhydrous ammonia as much as $150 a ton this week, effectively doubling the price. Anhydrous ammonia and other fertilizers are produced with natural gas.

Crude oil prices, directly affected by war and peace in the Middle East and labor conditions in Venezuela, have been inching up in recent weeks and months. They will affect the cost of gasoline and fuel for planting and harvesting.

Making predictions about war and petrochemicals is simple compared to predicting the weather for the next six or eight months.

"The western Corn Belt (which includes Iowa) has fallen under low levels of drought," Hurt said.

Reduced crops there would drive corn prices up, which would be good for Indiana farmers. But Indiana had the drought last year.

In 2002, a wet spring delayed planting and a bone-dry summer and fall stunted the seed that got into the ground. Hurt said fields in east central Indiana were expected to yield 144 bushels per acres. They averaged 95 bushels per acre.

But good crops in the west kept per-bushel prices down. "The western corn belt was in good shape last year. It saved the national market," Hurt said.

"We don't have a huge inventory coming into this year," Hurt said. "Weather problems (in the west) could force prices up."

Hurt said a million acres in Indiana, Ohio and Illinois that didn't get planted in corn last year will probably be planted this year.

The Corn Belt centered on Indiana should have a good crop. Ground moisture is back to normal. Long-range forecasts call for a dry spring, meaning early planting. If the summer is arid, there should be enough corn that Hurt said $2 per bushel prices for corn are possible at harvest.

The concern for soybean farmers isn't Iowa weather; it's South American weather.

Hurt said summer in the Southern Hemisphere has been "perfect" this year and the South American soybean crop should be 15 percent greater than last year.

"The world is shifting over to South America for soybeans," Hurt said. "The market is at the tipping point."

"We're in a period of great uncertainty," Hurt said.