In trading Friday, December corn futures in Chicago fell 2 ¼ cents to $5.87 ¾ a bushel, up 1 percent this week. December corn rose as high as $5.95 ¾ on Thursday, the highest price for a nearby contract since August 2008, when futures reached $6.08 ¾.

While most pork and beef producers saw profits return this year as animal prices surged, $6-plus corn in 2011 may send them back into the red if they don’t have feed costs sufficiently hedged, market advisor Mike North said. That raises the specter of a repeat of 2008, when a spike in corn above $7 helped trigger breeding herd liquidation.

“Once we get through the first of the year, if (livestock producers) don’t have a significant amount of grain pre-priced and we don’t have the demand, they could be in some serious trouble,” North said. “Their margins would be compromised and they’d get squeezed.”

U.S. corn farmers face unprecedented risks as prices hover near $6 a bushel, including the prospect that a mass speculator exodus sends grain futures prices tumbling, North said.

Grain exports have slipped recently, a sign that high prices are curtailing overseas demand, North noted. Additionally, escalating feed costs are squeezing margins for domestic pork and beef producers and may force them to trim herds next year.

Citing a long-standing grain market mantra – the best cure for high prices is high prices – North said farmers should be prepared for a steep slide and guard their margins carefully.

Risks over the next year “are more extreme and less predictable, but are more damaging to the producers,” said North, who’s with Platteville, Wis.-based First Capitol Ag.

“Everything in the market suggests that it should go higher,” North said, referring to corn. But “at a moment’s notice, all of that can change. One has to be careful about the pitfalls in these markets. If you’re not covered, you’re in trouble. It’s that simple.”

Corn futures rallied 66 percent since the end of June, reaching the highest levels in more than two years earlier this week, after drought slashed Russia’s wheat crop and the U.S. harvest produced lower than expected yields.

The risk for corn growers revolves around speculators, who built record-high long positions in grain and livestock futures this year. Corn futures may plunge as much as $2 if a large number of speculators decide to bail out of those positions within a short period of time, North said.

“At what point do (speculators) say, we’ve made enough money here, let’s move on to another asset class?” North said.

“They could decide to get out of hundreds of thousands of contracts, and it could have a pretty damaging effect on price,” he said. “It’s possible they could unload at any point. To go back to $4 in this market is incredibly real.”

As of Oct. 26, swap dealers and managed money, the two largest categories of speculators tracked by U.S. regulators, held a combined 728,453 long positions in Chicago Board of Trade corn futures against 64,162 short positions, according to the Commodity Futures Trading Commission. The combined longs accounted for 46 percent of total long open positions.

First Capitol Ag, a unit of Chicago-based trading firm Penson Futures, recommends a six-step hedging program for corn farmers, primarily revolving around staggered cash market sales and put options.

By the beginning of the past summer, First Capitol recommended farmers sell 50 percent of their expected 2010 corn harvest sold at an average cash market price of about $4.25, North said. The firm has since suggested farmers sell another 30 percent.

Currently, farmers following the program still should have the other 20 percent left to sell, and First Capitol expects to have the remainder of the crop sold by the end of November at around $5.25 a bushel in cash markets, North said.

Whatever happens in coming months, 2010 is shaping up to be a profitable year for corn farmers, North said.

“Most farmers came into this year with cost of production south of $3.50, so there are some hefty profits to be made,” North said. “The key is being flexible. That’s critical in these markets. When you get markets that can swing like this, you’ve got to have the agility to move with them. There’s no question it tests your emotional fortitude.”