What will you get for corn & beans in 2012?
How's $5.65/bushel corn sound? How about $11.20 soybeans?
Those are the average crop planning prices for 2012, according to Iowa State University Extension ag economist Chad Hart. Corn prices will fall through the year, from an average of $5.80/bushel in the first quarter of the year to $5.25 in the fourth, Hart says. The trend is a little different for soybeans; that high price comes in the third quarter, topping out at $11.30 after starting the year around $11.10/bushel.
Demand and weather are the 2 major factors making up those estimates, Hart says. And, it's not just the weather at home. "I factored in the dry weather, especially for corn. My big concern for 2012 will be a lack of soil moisture, which could trim yields," says Hart, whose high price estimate for the year comes in the second quarter of the year at $5.85/bushel. "That's staring at not only dry conditions here, but the whispers that South America's going to face similar dryness this year because of La Nina."
The support Mother Nature will lend to the grains in the coming year will be limited, though, by a demand picture that will continue to be plagued by bearishness.
"Large grain crops in the rest of the world will keep export demand weak. The expiration of the ethanol benders’ tax credit and declining broiler and cattle numbers point to stagnant domestic consumption in the first half of 2012," adds University of Illinois ag economist Darrel Good. "U.S. farmers may increase corn acreage and a higher yield in 2012 would result in more abundant supplies, but uncertainty will persist through the summer."
Good sees a similar price range for corn in the coming year, ranging from the mid-$5/bushel range to just past $6.00.
The U.S. soybean crop this year is smaller, Good says, which would ordinarily give that complex a jolt of upside energy. But, world demand seems to have weakened in recent weeks, and that's going to keep a lid on prices, at least as they're projected now.
"A small U.S. soybean crop in 2011 has been met with weaker demand. A large South American harvest in 2011 and expectations for another large crop in 2012 has resulted in weaker export demand for U.S. soybeans, meal, and oil. Chinese purchases started more slowly than in the previous year," Good says. "Year ending stocks of U.S. soybeans will be relatively small, but adequate. U.S. soybean acreage in 2012 will need to be maintained near the level of 2011. Supply uncertainty will persist through the summer of 2012, suggesting that prices will be maintained in a wide range around $11."
Another wrench in the demand picture at home is feed demand. Hart says ethanol's coming on strong as a demand factor for corn, but at the same time, livestock feeders are looking to alternative feedstocks in an effort to keep costs down.
"Livestock feed demand has been weak the last couple of years as ethanol takes over as the number-one use," he says. "We've seen southern producers move more cattle to the Midwest to get them on some grass. And, they've been substituting other things into the feed ration. They have already shifted. It's the old game: What's the lowest cost feed ration?"
Hart adds it's important not to chase the expected price fluctuations, whether you're buying or selling. Even at the levels he and Good expect for the next year are lower than they've been at times in 2011, it's important to stick to your bottom line and, when it comes to your marketing plan, do what works.
"Prudent marketing says you don't chase rallies. It averages out to be a pretty good number. Don't chase the highs and lows," Hart says. "Even when I look at prices out there today, I see a price well over our production costs."
Right now, Hart says production costs for corn this year were around $4.00/bushel. And, with projected prices for 2012, that still should yield a profit.
"Sure, at one time, prices were $7, but the idea of $5.50 is still a good margin," he says. "Even on a bad day, that's a good market."