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Good Times for Livestock Farmers, Tough Times for Crop Farmers

If you were a livestock producer back in 2012 thinking just crop farming would be a lot easier, think again. You’re in the catbird seat for the next few years while grain farmers endure tighter margins.

“The crop sector from an income standpoint looks much weaker, and the animal sector will be stronger,” says Chris Hurt, Purdue University agricultural economist. Hurt told those attending this week’s Purdue Top Crop Farmer Workshop that projections for a stratospheric corn crop come fall are putting buyers at ease.

“Basically, buyers around the world are breathing a sigh of relief, saying ‘we won’t have to fight other end users over this corn,’” says Hurt. “It’s not really a surplus, but the thought of being short (in corn) is not really in the world’s mind at this point.”

Surging supplies of soybeans are also expected. “We are at the highest inventory of U.S. soybeans since 2006,” he says.

Cattle producers are benefiting from per capita beef supplies dropping to their lowest supplies since the early 1950s.

”Cow-calf producers are in the driver’s seat,” says Jim Mintert, Purdue University agricultural economist. Tennessee 500- to 600-pound steer prices are hitting just over $200 per hundredweight (cwt) this year, with prices expected to tally around $215 for 2015. Five years ago, prices per cwt were hovering around just $100.

Lower supplies compounded by the porcine epidemic diarrhea virus (PEDv) are also occurring in the swine industry, too. That’s coupled with phenomenal growth in exports. Annual U.S. exports in 2015 could exceed 2010’s by over 1 billion pounds, says Mintert. As a result, Purdue calculations are for hog prices to hit around $95 per cwt for the third quarter of 2014. In the fourth quarter of 2013, prices were hitting just $61 per cwt.

High prices likely will spur livestock expansion. Still, stronger supplies won’t happen anytime soon. The swine industry is still grappling with PEDV. Lower feed costs, improved pasture conditions, and increased forage supplies due to drought relief in some cow-calf producing areas will spur cattle expansion. Still, larger supplies won’t likely appear until 2016 to 2017, says Mintert.

Tougher Go for Grain Farmers

Remember the food vs. fuel debate that raged a couple years ago? Well, those folks who thought ethanol was snatching food away from the mouths of babes can rest easy. In 2014, there will be ample corn for both.

“This year, we have awfully good looking yield potential," says Hurt.

Thus far, weekly corn crop ratings have been the second best in 25 years.

“It’s been a great week for pollination, with not a threatening forecast at this time,” says Hurt. “We are looking at a phenomenal corn crop, one that’s so good it only happens one out of every eight or 10 years.”

So far, he pegs a 172.1-bushel-per-acre average yield. Expectations are for a record 14.4 billion-bushel crop. “Right now, the market is clearly trading 170-bushel-plus yields,” he says.

Meanwhile, soybeans are also looking good. So far, yield exceptions are for average 45.9-bushel-per-acre yields. Record soybean production of 3.86 billion bushels is predicted.

So Is the Crop Boom Over?

Maybe. Much depends on weather, though. U.S. farmers produced a then-record corn crop of 13.1 billion bushels in 2009, only to have a yield crash in a droughty 2012 with 10.8 billion bushels. Weather can change things in a hurry.

If this pattern continues, the good news is the boom-bust period of the 1970s and 1980s likely won’t be repeated. Instead, it will be more of a “boom-moderation” scenario, similar to what happened after the agricultural boom of World War II, says Hurt. It’s not expected that demand components will go away, as happened with 1980s exports following the 1970s boom. That’s reflected in current December futures for 2015, 2016, and 2017 of $4.25, 4.37, and $4.48 per bushel, respectively.

The same pattern applies for soybeans, although the current 2015, 2016, and 2017 December futures levels of $10.98, $10.93, and $10.89 aren’t slowly rising as in corn.

So What Should I do Now?

For corn, Purdue economists recommend:

  1. Adding more new-crop sales. Hurt says there may be a technical recovery with a dead-cat bounce, where markets spike 15 to 20 cents per bushel. The crop still has the rest of July and August to go, though, so weather rallies are possible. At this point, however, with pollination already occurring, the odds of a weather rally are small.

  2. Locking in more basis.

  3. Exploring the price protection of the new federal Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) program and crop insurance.

  4. Finding storage and earning futures carry and basis appreciation.

Recommendations are similar with soybeans, although there is more chance of a weather rally. August is crucial for soybean development, so any weather problems could induce a market rally.


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