Ray Grabanski: Corn prices make new highs
Corn futures prices hit and closed above $4 in the December 2007 new crop contract for the first time in history yesterday, setting a new price precedent for the crop prior to planting. We are charting new price territory for grain corn, so it will be interesting to see how many acres this will attract in 2007. Interestingly, corn prices have really almost never topped in January, so prices this high might be suggesting even better things for the future as we approach spring planting. Currently, harvest time bids at ethanol plants even in fringe areas are topping $3.50, and even pushing towards $3.80 local cash price and higher in almost the entire corn belt.
These are phenomenal prices for new crop, and it should be fairly obvious that the market feels a great need to attract corn acres for the coming year. Our Chief USDA Economist, Keith Collins, recently testified to the Senate Ag Committee that we might need as much as 14 million new corn acres next year or nearly 20% - much higher than earlier estimates of near 8 million. This keeps the pressure on corn to stay high into planting to get those necessary acres, and also for high prices to try to stem demand for the near term. We really have very little record of even half that much acreage shifting into corn in any crop year. Can we get it done this year?
Interestingly, guarantees for crop insurance purposes look to be much higher in 2007, with price elections for corn so far at $3.50 for yield insurance vs. only $2 last year. That's a 75% rise in coverage for price - a year to year change almost unheard of. New corn growers this year will have much higher yield guarantees as well since RMA revised county yields 5-20% higher in most counties. Combined, it means the revenue guarantees for new corn growers could be as much as 75-100% higher than last year! This is another example of the sharp rise in the projected income from corn acres, with both the marketplace and even crop insurance values reflecting the need for more acres. Could Mr. Collins be talking to RMA about making corn a more attractive crop to grow??? With revisions in T yields across the country this year, it will likely help attract acres from non-traditional corn areas.
Revenue guarantees (set during February), if figured today would be $4 corn vs. $2.59 last year for a huge 54% rise in price. It is off these numbers that many dryland and irrigated producers are planning on putting in more corn acres. The question seems to be not whether to do it, but how much! While premiums per acre will rise, no one seems to care as long as they can get the guaranteed dollars to go with it.
Although today prices retreated from these lofty levels of $4 Dec corn, but these kind of price levels this far in front of planting is indeed an interesting situation to say the least. Not only did new crop corn prices post new highs yesterday, but also Sept. Mnpls wheat and Nov. soybeans closed at new yearly highs as well. We find it interesting that all the new crop markets which do not yet have any planted 2007 acreage are all rallying to new highs (only winter wheats failed to do so yesterday). The battle for 2007 planted acreage continues, with the next step to see how much price guarantees for crop insurance will impact acreage.