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Ag 'Still in a Good Spot' Despite Market Slide
“Rebound and rebuild, that’s where we’re at today,” Chad Hart, Iowa State University associate professor of economics and crop markets specialist, told farmers earlier this week at the Iowa Farm Bureau Federation’s Economic Summit.
“The crop looks the best that I’ve seen in some time - 165 bushels of corn per acre looks like a pretty good number to me," he said. "That’s not as high as some are predicting, but there’s still potential for another record crop. Demand is continuing to build, but it’s not enough to soak up the crop. We’re on the way to $3.50 corn. We’re almost there.”
Hart also thinks the soybean yield per acre will come in lower than some are predicting. “We’ve never planted this many,” he said. “The number may be lower, not because of crop conditions, but because of where the 8 million acres of soybeans are being grown. Minnesota, Wisconsin, and North and South Dakota are not as favorable for growing soybeans, especially with cooler-than-normal summer temperatures. The crop there may be susceptible to an early freeze that would nip off the yield.”
Hart sees record demand for soybeans. “The problem is the sheer number of bushels produced,” he said. “We’ve ramped up a lot of acres into production, and that’s holding on for now. There’s not a lot of incentive to move in a different direction. Prices probably will be down for another year.”
With one month left in the 2013 marketing year, he told producers to expect to average $4.50 for corn and $13 for soybeans.
“The prices we’re worrying about are for the crop growing in the field,” he said. “We haven’t seen the bottom yet. But we will see a few opportunities out there. Demand is strong into 2015, but prices depend on how much we produce.”
For 2014-15, Hart is looking at $3.70 corn and $10.48 soybeans, on futures, as of July 11.
“A lot of the acreage decisions made in the past year were based on great returns,” he said. “We’re on the downside now, and farmers may start taking the foot off the gas pedal while demands race to keep up with them.”
Hart is cautiously optimistic about ethanol. “The ethanol market is continuing to find a way to grow,” he said. “Domestic use is saturated and we’re producing enough to blend up to 10%, but exports are picking up. You can see this in biofuels today. We’re producing at near-record-high levels. The international market for crude oil isn’t backing off, it’s still in demand.”
Looking at the global grain market, Hart sees a familiar scenario. “The rest of the world also still is ramped up for record production.”
“China has devoted as much land to corn as it can,” he said. “Until agriculture modernizes, it will be hard to grow enough corn. And 25% of our soybeans end up in China. China did not back off from buying, even during the U.S. drought. That demand is crucial to helping soybean prices hold up. Soy is likely to hold that advantage over corn. The market starts and basically ends with China. It is the big dog.”
Regarding domestic livestock, Hart sees strong prices. “Consumers so far are willing to move with prices, and pay more. It’s a balancing act. There’s a tendency to overswing and then bring it back into balance. That’s what we’re doing today. For beef, it’s going to take more time. I see our own domestic demand building, but not quickly.”
Hart admitted that it’s tough to realize that 2009 is the last time grain prices were this low. “Prices won’t pop back up right away,” he said. “There’s too much crop coming our way. Still, it’s not that bad. Ag still is in a good spot.”