That was one of the main themes on Wednesday during the 10th annual Ag Conference sponsored by TierOne Bank and KRVN at the Heartland Events Center.

One of the speakers was Darren Frye, president and chief executive officer of Water Street Solutions, based in Illinois.

Going into 2009 with the credit crisis, agricultural producers will need to have a better handle on their finances and a solid marketing plan, Frye said.

"I think these markets are going to be range-bound (within a trading range of $3.50 per bushel to $5 per bushel), and it's going to be hard to get it outside of that trading range next year unless we have a weather problem," Frye said.

He said he expects more stability in markets next year unlike this year, when grain prices have fallen by 50 percent in a three-month period.

"I think '09 is going to be more down to earth as far as the way commodities are traded," he said. "We are trying to rebuild some of the demand, and the world is trying to stabilize. I think that '09 is going to be more predictable than '08 was."

Problems facing some of the nation's ethanol producers were more a hedging mistake, Frye said. For instance, VeraSun, which operates ethanol plants in Central City, Albion and Ord, has filed Chapter 11 bankruptcy.

Producers who forward contracted their corn to ethanol plants that are now in trouble are seeing those contracts not honored, leaving them with a loss of $2 to $3 per bushel.

"There was a lot of corn locked in at higher prices, and the output was not locked in," Frye said. "Unfortunately, the American producer is going to feel the brunt of that."

Frye doesn't think ethanol production will be down overall in the nation next year.

"But I do think there will be a changing of the guard in who is producing it. It will hurt, though, corn demand in the short term."

Frye said markets for nitrogen, potash and phosphorus fertilizer are softening, and energy costs are down. He said that will help stimulate the overall ag economy.

"If a producer hasn't locked in fuel and fertilizer, they are going to get some good buys between now and February, but it's going to be a tight year," Frye said. "It is not going to be a year of really good margins. It is going to be a year of managing risk. I really think we need to get through '09 before we see some better things happening."

For the entire 10 years of the conference, David Kohl, professor emeritus of agricultural and applied economics at Virginia Tech, has been the keynote speaker.

Kohl said the agriculture economy is going into a period of extended economic moderation.

"You will see volatility at the extremes, followed by short periods of economic calm," Kohl said. "We are going to reprioritize our business, family and personal decisions, and we will be better for it."

Part of that reprioritizing must include a good financial and marketing plan, Kohl said.

"Don't be surprised this winter if we see some pruning of the portfolio, and some people are going to be put off on the streets to find another source of credit," Kohl said. "Take this as a challenge - get your marketing, business and financial plan together, and get it in early, and get your credit needs addressed."

In 2009, Kohl said, he still expects to see continued volatility, especially as "there's a lot of worldwide economic uncertainty."

That uncertainty includes market demand and supply, he said.

"You are going to see these extreme volatilities because one of the biggest expenses on a farm and ranch business is related to oil, such as fertilizer and fuel," Kohl said. "That is not going to go away, and it's going to be up and down."

 

With oil prices falling on Wednesday to $53 per barrel from a high earlier this year near $150 per barrel, Kohl said some fertilizer prices are softening, though fertilizer supplies in the pipeline remain high.

"This is one of the big challenges," Kohl said. "Producers are basically going to say, 'I can't make money, and I can't compete at those prices,' and that is going to be a challenge coming into 2009. It kind of puts us in a Pandora's box."

Kohl said 2009 could be "rocky times" for the nation's ethanol industry as many plants either curtail or shut down operations.

"Some of these plants around the country are going to face some real financial stress," he said.

Dallas Kime, who manages ag lending and lending in outstate Nebraska for TierOne Bank, also said 2009 will be a challenge.

"We are still on a little bit of an emotional roller coaster," said Kime, who also organized the conference.

 

"Three months ago, corn was double what it is now. People are seeing things get difficult economically."
And Kime said it's starting to hit home.

"With that realization, we in the banking business and as ag producers need to make sure that we are sticking to the basics as we move forward in 2009," he said.

But getting producers on track for 2009 has been difficult, as wet weather has delayed harvest and fall field chores, Kime said.

"They are going to be presented with challenges in 2009 with input costs that are still going to be high, and they have seen commodity prices that have come down," he said.

Kime said the theme for 2009 is getting back to the basics.

"Having a marketing plan, understanding your break evens and cash flows are going to be as important as they were in the late 1980s or more so," he said.