Crop Outlook

2013 Crop Outlook

Successful Farming Business Editor, Dan Looker and Iowa State Extension Farm Business Specialist, Steve Johnson discuss the forces driving farmers 2013 planting decisions.

-Welcome. I'm Dan Looker, business editor at Successful-Farming Magazine, and with me today is Steve Johnson Iowa State University extension farm management specialist and we're going to be talking about the outlook for 2013. After 2012, I think everyone is hoping that we'll have a slightly more boring kind of average normal year, right Steve? -I think you're saying no drought, I think-- -Exactly. No drought, no drought. -I think it's the message. -So-- while there are all kinds of things to consider in the outlook and of course, perhaps because of the drought, prices for inputs they're going up but they aren't going up too much, right? What are you looking at for cost next year and-- are we gonna see any breaks anywhere in input cost? -Yeah, the early releases for the 2013 crop input cost are very similar both from Dr. Gary Schnitkey at the University of Illinois. -Uh-hmm. -As well as Mike Duffy at Iowa State University. Basically, we're not seeing a significant increasing cost. The cost that goes up amongst in 2013 will be number one seed roughly 5 to 7 percent increase, and then crop protection primarily because of the need to provide multiple modes of action as we have Resistance both from-- -Right. -Weeds as well as pests, but note that land is an important consideration and so-- -Right. -At Iowa State Univeristy, Dr. Mike Duffy's increasing what we call Cash Rent Equivalent by 7 percent. And I believe the cost that increases the most in 2013 probably will be that cash rents. So for those that are using crop share agreements, for those that have multiple year agreements or fixed cost or flex leases, I would say that they like will not see an increase for those that are going year to year. I think we're gonna see some pressure on cash rents and-- -Okay. -Dan, one of the things is not all cash rent have been determined yet for 2013. So, I think we'll hear some interesting stories, maybe not-- like we heard land sales. We'll probably hear some high cash rentals rates for 2013. -That could be reflecting the usual lag in cash rents behind the increase in land prices, right? -In these high crop prices, I mean, you know, user still got 6 and 13s in front of 2013 crop. And so the expectation is that, we'll probably gonna have higher crop prices at least looking out. Then, we would have ever anticipated. The drought has that lingering effect-- -Right. -Of limiting the amount of supply and likely higher crop prices. -Okay. Well, because of those crop prices and the drought. Where do you see the acreage battle as one of our-- Do you think we'll see more corn acres compared to last year or-- if you talk to folks at the board of trade and some economists seemed to think that we're going to see an increase, but I gather, you're a little bit skeptical-- -Well, you know, no one knows. We're hearing private estimates-- numbers like 96 and 97 million acres planted for corn. I think we've got a graphic and I think this graphic will literally create or I think we're going. If we look at our history over the last 3 years, we can see that we tended to plant more corn in both 2010 as well as 2011. In 2012, we actually increased the corn acres and decrease the bean acres. And I think a lot of that was because we had a dry spring and we had good corn prices. -Uh-hmm. -But we didn't see as many double crop bean acres because of the extremely dry Southern Corn Belt. Let's take a look at 13-- and these are my forecast. I'm anticipating that US farmers will plant less corn in '13 as compared to '12. The primary reason is the drought, the lingering effect of the drought especially in the Central Plains and the Western Corn Belt. Now, we won't know this number. Likely, we won't know the number until next June in USDA releases the acreage report because the projected numbers that we'll see perspective planting report release in late March is simply gonna be in early March survey. I think the likelihood is we're gonna see farmers reluctant to plant corn on corn-- second year corn with the types of hoarse soil moisture that we have. I actually see bean acres going up maybe a record bean acres of 80 million acres especially if we get some timely rains and the Southern Corn belt in the Central Plains in May and June, we'll see a lot more double crop acres than we have before. Again, when I look at wheat-- I might be a little high, I'm using 57. It looks like maybe less than 57 million acres, but if we don't plant wheat-- winter wheat, we're probably gonna see more beans and maybe some sorghum planted. And again, CRP is now down around 27 million acres. I believe the planted acres-- once the smoke clears in the spring and summer of '13 will show that the likelihood unless we have substantial moisture, this winter and the spring. We won't plant as much corn, and corn will be very well supported. I think soybeans is the crop that I'd be more concern about having a lower price for 2013 based on the potential for large South American production. -Uh-hmm. Well, of course, weather is a big factor in planting decisions even though a lot of those decisions are locked in the fall but, I remember the drought of 1988 very well and I happened to be working at the Des Moines registrar at the time and we covered the drought very thoroughly in 1988. And we were in the process of planting our 1989 drought coverage and just about the time we went out to do some early stories on it, it started raining and I wish we could have that effect at Successful-Farming by doing similar stories but my point is that-- if the very last minute or almost a very last minute, we got ample rain for a halfway decent crop. That was here in Iowa. Now, that wasn't true in some areas. They have the Great Plains and-- so I wondered what I guess there really isn't any way to forecast the weather that far out but what kinds of things are you going to be looking for at least to watch for potential impacts on a weather, long-terms patterns as well as-- well, anything else we'll might be able to look at. -I like to use the past. You know, when we talk about market prices, we always use the past forecast for future. Over the last hundred years, we've never seen back to back years with significant droughts. -Right. -I agree with you. There'll probably be areas of the Corn Belt or the Great Plains that probably will be into drought again in 2013, and that's the area that I'm anticipating likely planting more bean acres. So I think trying to forecast weather in a very far out-- but because we don't see the tendency back to back droughts especially here in the Corn Belt. I would anticipate that we return to more normal weather patterns even though they're probably gonna have a warmer and dryer winter. I think the spring weather patterns will be a key. And so using a trend yield, the 20-year trend yield, it still put us on a 160 bushel on acre trend yield for corn in around 43 bushel on acre trend yield for soybeans. So again, I think you've got to be a little cautious about using one year last year in forecasting the future. I'm still using normal as more of a predictor for weather conditions for 2013. -Okay. Well, I certainly hope that's the case. What about the pricing? If we do have normal weather, that doesn't suggest that we're going to have the levels or prices that we're seeing now even though they're falling or still relatively high. Do you have any sense as to where prices may be next year or when they may start to fall if there is a significant drop? -Well, I think November and December is gonna give us a pretty good indication. Number one, fundamentally, we're gonna see South America who is now forecast to produce record number planted acres of soybeans and the potential is there that Brazil and Argentina produce record crops. So, the drop that we might see early on probably will be in the soybean market. I would anticipate that soybeans will be under more pressure than with corn because the US produces the majority over 40 percent of the world's corn. I would think that corn will be very well supported into this fall-- and in this winter and into the spring time frame and tell we can confirm what time of acreage numbers will be planted in the Northern Hemisphere. Again, but-- primarily a focus on the US and China, and so if I was encouraging a producer to have a marketing plan, I would be [unk] pricing beans for 2013 earlier than corn, but using especially the late winter and spring periods to go ahead and forward market, adequate amounts of corn and beans to meet cash flow needs for fall and winter of '13-'14 using crop insurance revenue protection, selling insurance bushels. But I'm gonna be more likely to use options in '13 that I have been in the past. Put options primarily as a method to protect against lower prices but yet not committing bushels to delivery. I'll be patient and wait for primarily that late winter and spring pricing period to buy those [unk] so I spend less on time value. But I think that I want to have a plan together well in advance. I wanna know my cost and I wanna use my cash flow and I wanna use profit margins as the driving force. I am concern that a lot of farmers likely will plant more beans, rotate to more beans without a marketing plan. So an agro-nomic decisions out ways an economic decision. We've got an example farm that I've been using for my training and I'll use this winter and it's 1,500 acre farm in a corn/soybean rotation. Last year we planted more corn acres. It'll come back to corn/soybeans and for that example farm, I would already have 10 percent of my 13 corn sold committed to delivery via an HDA for a fall '13 delivery in 30 percent of my beans, corn over 650, December '13 and soybeans over 1350, so again, I don't think it's too early to have a plan and to get something sold but less let cash flow and less let my profit margin objective drive me. -Okay. Well, even with weather and crop prices being as uncertain as they always are, the global economies seems to be equally or if not more uncertain-- what's your thought about some of the things that we should be looking for in macroeconomic forces around the globe that might be affecting, you know, the value of the dollar and the value of our exports. What are you looking at in the global economy, Steve? -More uncertainty. I think 2013 points to a year that we're gonna have even more uncertainty especially with the fiscal cliff that we're dealing with in the United States. The European debt contagion that never seems to go away and obvious is that we're starting to see slower economies around the world. So, while we're focused on the fundamental supply and demand of both old and new crop corn and soybeans. I am equally as concerned about the likelihood of continuing to see financial uncertainty around the globe. And again, when we have uncertainty, the funds-- both the commodity and indexed funds are reluctant to the buyers of futures, and so I like to watch the CFTC Weekly reports. I like to watch Volume and unopened interest. I'm sensing that we're likely seeing less interest in being long futures. And again, the fiscal cliff also has the likelihood that we increase capital gains and we taxed the dividends. I think you're going to see the likelihood that those that were investing and speculative investors in commodity futures might be selling as we head to year-end 12 because of the likelihood of higher tax rates here in 13. -Sure. I think we may be seeing a little bit of that already. Okay, we'll it's going to be an interesting here. Thank you very much Steve-- Thanks Dan. -Sure.