‘Incredible ride’ over
Chad Hart, an Iowa State University economist, told an estimated 50 farmers Wednesday that the high-profit years in corn and soybeans is all but over.
He estimated the 2013 Risk Management Agency’s revenue guarantee to be $5.24 per bushel for corn, down from 2012’s $6.61, and $12.12 per bushel for soybeans, down from 2012’s $14.06.
“It’s a good price,” he said of the both commodities, “but not a great price.
“We’ve had an incredible run, but that’s not normal and our prices can’t keep this up.”
Hart was one of several speakers at the Iowa Corn Crop Fair at Iowa Central Community College Bioscience and Health Sciences Center.
According to the U.S. Department of Agriculture, the average 2012 price for cash corn in 2012 was at $7.20 per bushel and $14.30 for soybeans. Both were up from 2011’s $6.22 and $12.50, respectively.
High prices have cut domestic and export demand for a limited supply of U.S. corn, Hart said, falling from 13 billion bushels in 2009 to 11.2 billion bushels in 2012.
As a result, rationing of corn demand has tried to balance demand with supply. Even so, the price still remains high as a result of 2012’s drought and the fact that large portions of the corn belt, especially in the plains states, are still in persistent drought conditions, just weeks away from spring planting.
“Last June,” Hart said, “the drought pushed corn and soybean prices up 40 percent.” That forced domestic end-users – primarily livestock feeders and ethanol plants – to curtail usage. U.S. 2012 corn exports fell well off 2011’s pace from 1.5 billion bushels to 900 million bushels, as countries found other lower-priced sources of corn.
The U.S. is still the biggest corn producer in the world, Hart said, and the market futures are anticipating the price based on estimated demand and supply.
“Right now the target issue is the U.S. corn supply,” Hart said. “The next big news for the market will be the mid-March intended acreage report.” If that number comes in at 99 million acres for corn in 2013, farmers can expect to see the futures market prices continue to slip.
Although price rallies could still happen if drought conditions continue, Hart said, don’t expect to get back into the $7.50 range, because demand has essentially been all but destroyed.
Hart believes lower corn prices will become the reality of U.S. corn marketing as Ukraine, Egypt and other countries begin growing more corn and become competitors with the U.S.
Hart said it appears that in 2013 Brazil will likely surpass the U.S. as the world’s leading soybean producer, with Argentina tallying third.
However, prices are expected to remain relatively high as China continues to buy the lion’s share of U.S. and South American soybeans – 60 percent of the U.S. exported soybeans volume. China’s current 600-million-bushel shopping spree equals twice what Iowa harvests per year, Hart said.
But even then, soybean prices are likely to slip this year as livestock producers have fewer animals to feed, combined with South America’s ramped-up yields.
Watching the birds
Hart said demand for corn and soybeans will begin climbing again as the price falls and a farmer can see the trend correct itself by watching poultry feeding.
The poultry industry can adjust to higher numbers and require more feed grains in a matter of weeks, Hart said, as opposed to months for hogs and years for cattle.
Although livestock feeders have been contracting their numbers during the past two years, he said the poultry industry is already showing signs of gearing up production and there’s indications that the swine industry is also starting to increase numbers, looking forward to profitability in 2014.
In the meantime, he said, 2013’s livestock feeding demand will remain the same as 2012.
Hart sees ethanol’s demand for corn will not return to the level of the past few years. He said the industry is glutted with 800 million barrels in storage as American gas consumption has fallen well off the U.S. government’s expectations.
Ethanol consumed 95 million bushels of corn in 2011 and 2012, but that is expected to be trimmed back to 83 million bushels in 2013, he said.
The government established the biofuels production numbers based on an expectation of gas consumption to keep rising.
But the 2011 recession caused America to change its usage habits through less traveling and commuting and buying flex-fuel vehicles.