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No Surprise: Expect Lower Corn and Soybean Prices for 2013-2014
Expect the corn and soybean price drops of the last few days to continue as we roll into the 2013 harvest.
“We have in place potential for a 14 billion bushel corn crop,” says Darrel Good, University of Illinois Extension Economist. Good told those attending last week’s Top Crop Farmer Workshop at Purdue University. That’s up considerably from 2012’s 10.8 billion bushel crop.
That’s bearish. “For the most part, that 14 billion bushels will be above (anticipated) consumption,” says Good.
Uncertainty remains. Good expects USDA’s June 28 plantings report of 96.4 million corn acres planted and 89.1 million harvested corn acres estimate to ratchet downward. Still, this may be offset by higher yields than USDA’s latest estimate of 156.5 bushels per acre.
“Based on what we know today, with crop and weather conditions, my (yield) expectations are higher than that, maybe 5 bushels higher than the USDA number at this point,” he says. “The critical period for determining yield is now beginning. This can change quickly, but as conditions stand today, we are basically looking at a trend yield for this year.”
Unless you locked in prices for this year last fall—and you likely have plenty of company if you didn’t—you’ve likely seen the last of $6 and $7 per bushel new crop corn for a while.
“I think we are transitioning back to a more sustainable long-term average price in that mid $4.50 level for corn,” says Good.
What About Soybeans?
More of a wild card exists with 2013 soybeans. USDA pegged soybean plantings at 76.1 million bushels, up 1% from last year. It estimated harvested acres at 75.3 million acres.
“As with corn, my expectation is these numbers may go down just a bit, particularly harvested acres,” says Good.
Like corn, yields are expected to be up from last year. USDA projects a full recovery to trendline yields of 44.5 bushels per acre yields, up from 2012’s 39.6 bushels per acre. USDA estimates total production to tally 3.42 billion bushels, up from last year’s 3.014 billion bushels.
Still, this won’t be known until later into the growing season.
“There is considerable more uncertainty about soybean yields compared to corn, due to the lateness of the crop, especially in northern growing areas,” says Good. “We need a full growing season. We can’t afford an early frost on this crop.”
If normal trend line yields result, though, it’s likely 2013-2014 prices will back off from last year’s $14 aveage range to between $10.75 to $11 per bushel, he notes.
Demand Will Bounce Back
Demand destruction is an unfortunate byproduct of a short crop. One positive of this year’s projected bumper crop is demand should snap back.
“We are looking at exports this year of 700 million bushels, a multi -decade low,” says Good. USDA is projecting a decent rebound in exports of 1.3 billion bushels. That is still below normal, but a decent rebound.”
Tempering this is that corn production is expanding worldwide into places like Brazil and the Ukraine. “Once production capacity is in place, it is hard to reverse,” says Good. “So, there will be competition in the corn export market as we move forward.”
“If we have any kind of crop close to 14 billion bushels, ending stocks will build rapidly in 2013-2014,” he says. “Certainly, the weather over the next four to five weeks will influence how heavily that will be.”
USDA expects soybean exports to rebound to over 1.4 billion bushels. However, much depends on the 2014 South American crop and Chinese soybean imports, says Good.
What To Do?
“People have been rewarded for not forward pricing in recent years,” says Chris Hurt, Purdue University Extension agricultural economist.
This may be the year forward pricing slices risk.
However, how much to forward price depends on your crop insurance protection level. Bear in mind that an 85% crop insurance level locks in $4.80 per bushel price protection for corn (85% x the $5.65 February crop insurance price).
This crop revenue insurance protection basically acts as a put option, notes Good.
“When forward pricing you are basically selling the crop twice,” he says. If you’re convinced the price will go down, this may be a prudent strategy. Locking in good share of your crop now gives bottomside protection.
“But if the price rises, you get a double whammy,” says Good. “You sell at a lower price and don’t get crop insurance. “Based on the prices we have on new crop corn, having an 85% crop insurance level and 20% of the crop forward priced at this time is a prudent strategy.”
Continue to watch markets for rallies and sell them, advises Hurt. Even after this year’s soybean harvest, South American weather concerns next January and February could spike rallies, he notes.