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Lingering drought effects hit markets

DANIEL LOOKER Updated: 01/14/2013 @ 9:14am Business Editor

Chad Hart, Iowa State University Extension economist and grain market analyst, looks for another year of volatile prices. But with weaker demand and some drought recovery in the eastern Corn Belt, prices could be lower than 2012.

Sunday he told Farm Bureau members at their annual meeting in Nashville that he projects $5.50 corn and $8 wheat, with soybeans averaging about $1 a bushel less than in 2012. Cotton will remain “south of 80 cents” a pound.

Some factors behind this: “The corn export market has been basically cut in half,” Hart said. More fuel efficiency and less demand for gasoline means “we’re not likely to see continued growth in the [ethanol]industry for the next two years.”

Unlike other commodities, cotton has not seen a run-up in prices in recent years, mainly due to large stocks in China: twice the annual U.S. production.

“Until that cotton moves, it’s going to be hard for the cotton market to gain much traction,” Hart said.

With extreme and exceptional drought lingering in the western Corn Belt, yields of corn, soybeans and wheat “will likely remain below trendline in 2013,” he said.

“Risk protection is key as you look at 2013,” he said.“I’m not going to tell you I know where prices are going to go,” he told Farm Bureau members.

He urged them to take advantage of price levels that appear profitable and consider using options, which leave the upside potential uncapped.

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