The well known adage in grain marketing is "the cure for low prices is low prices." If there is no profit to be made in a commodity, then a smart farmer will stop producing that commodity. The concept is responsible for the periodic hiatus in pork production between up and down cycles, as producers put their operation on hold until profits again become a possibility. The wise farmer will halt production, not wanting to lose any more money. There is no point in accumulating deductions if you have no revenue to be taxed. The eventuality is that prices will rise when production declines to the point that supplies are insufficient.

But let's look at the corollary to the adage about low prices. It would be something like: the cure for high prices is high prices. Not that a high price is a malady that needs to be cured, but when prices are high, the future is lower prices. That was probably taught in Economics 101, if I had bothered to take the course; but today's farmers may be nearing the application of that economic principle.

Demand from the bio-fuels industry has increased over time, consuming corn and soybean surpluses and gnawing into the annual share for livestock and foreign buyers. The resulting higher prices have caused some grain consumers to back away from the market, as the higher prices ration the demand. That has already occurred in the case of foreign soybean buyers and domestic livestock feeders. When the price goes too high, demand fades, and prices retreat. The ethanol refiners were close last summer to the maximum price they could pay for corn and remain profitable. Even though corn prices today are even higher, wholesale ethanol prices are higher, so the squeeze has eased.

Futures prices for corn and soybeans for the 2009 and 2010 crops are as high as current prices, which indicate commercial hedgers and speculative commodity funds believe today's prices will hold into the foreseeable future. With guaranteed profitability in corn and soybean production, what do you think will happen?

Yes, every soil-covered acre within 250 miles of a grain elevator will be planted to corn or soybeans. They will displace other grains which are less profitable, such as oats and barley; as well as a broad range of specialty crops that have been produced in prior years because they were once more profitable than corn or soybeans.

Global wheat prices have been quite high because stocks have been at 20 year lows, and nations that traditionally buy wheat have begun planting their own. While their production will not produce a bumper crop, it will dull the edge of the market enough for wheat prices to fade back into mediocrity.

As the US beef production cycle continues downward, fewer head of livestock will be on hand to demand grain and the edge comes off there. As pork production dives headlong into a pond red ink, fewer hogs will require corn. As new ethanol plants complete their construction phase, some will pause before turning on the switches to allow lower corn prices to soften their cost of operation. As foreign buyers balk at paying three times the price for soybean oil as they did about 3 years ago, their search for alternative vegetable oils will take the head off that market, and soybean prices will move downward.

The grain markets have been whipsawed in recent days with limit up and limit down moves resulting from both internal and external influences. And we are not even near planting season yet. The prudent grain marketer, whose written marketing plan contains the input from his knowledgeable and trusted advisory board, should be well protected. Both his marketing plan and the market are working.