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Normal 2013 weather will pressure crop prices
Enjoy these crop prices while you can. These lofty levels may not last if normal weather prompts new-crop supplies to surge.
“There will be a transition at some point from short supplies and high prices to more abundant supplies and lower prices,” says Darrel Good, University of Illinois agricultural economist. “It could happen as quickly as one year, or take longer than that. Right now, the market is offering a substantial premium as to what prices will be if we see more normal production. So that needs to be built into a marketing plan.”
Good told those attending this week’s AgMaster conference at the University of Illinois that if normal trendline corn yields occur in 2013, average yields could tally 162 bushels per acre. That’s about 40 bushels per acre above the latest 2012 USDA tally of 122.3 bushels per acre.
If acreage remains constant and weather returns to normal, a much larger U.S. corn crop will result in 2013, says Good. “The 14 billion-bushel corn crop forecast in spring 2012 (for 2012) could become a reality in 2013,” says Good. The latest 2012 USDA total production estimate is 10.7 billion bushels.
Topping this is a USDA projection of a record corn crop in Argentina, says Good.
One bright spot is that larger supplies will spur rebounding exports. Ditto for ethanol use. Feed and residual use would also rebound, as the larger supplies and lower feed prices would likely prompt livestock producers to rebuild their herds.
Still, increased supplies will likely cause corn prices to back off from the $7-plus per-bushel levels received in 2012. For 2013, prices may settle around the $5 per-bushel level.
Currently, new crop corn futures are floating around $6.30 per bushel.
“In my mind, the market is offering right now $1 more for next year’s crop than it will be if we have a good growing season,” says Good. “I don’t look for this price to fade until we have confidence for a good crop next year.” He expects this level to hold at least into late February, when 2013 crop insurance price levels are set.
Drought also shrunk soybean production in 2012 to an estimated 2.97 billion bushels.
“We also have to remember that South America harvested a small soybean crop, well off the record crop of two years ago,” says Good.
If normal weather returns to the United States in 2013, expectations are that soybeans will return to trendline yields of around 44 bushels per acre. That’s 5 bushels per acre above the current USDA 2012 tally of 39.3-bushels-per-acre yields. This likely will prompt U.S. soybean production to rebound to pre-drought production levels of around 3.3 billion bushels.
Like corn, increased production will likely lead to increased use. “Exports will have some recovery, but not to the record levels of three to four years ago,” says Good. “The good news is demand will remain strong, as we will continue to see strong soybean product demand from China.”
Still, increased supplies will pressure 2013 average soybean prices downward to between $11 and $12 per bushel. That’s down between this year’s average U.S price range of $14.50 and $15 per bushel.
As with corn, new crop futures are higher, currently floating around $13 per bushel. “The market has a dollar’s worth of production risk built into it at this point,” says Good.
Questions remain as to whether that’s enough compensation for production risk. “We have two crops to get through first -- the South American crop and the one here,” he says. “I don’t expect this price level to erode rapidly.”
Wheat is a different situation, with ending stocks of wheat being more adequate. Still, the pull of higher corn prices has helped pull average wheat prices to around $8 per bushel in 2012.
Next year, though, Good expects it to be closer to $7 per bushel. That depends on world production. As with corn and soybeans, there’s a risk premium built in, with nearby new-crop futures trading around $8.65 per bushel.
“That represents substantial production risk priced into today’s wheat market,” he says. The Great Plains in the United States continues to endure a drought.
“That’s the key supporting factor right now,” says Good.