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Demand concerns could could dampen 2013 prices

By Jean Caspers-Simmet
simmet@agrinews.com

Date Modified: 03/20/2013 9:07 AM

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CEDAR FALLS, Iowa — Extension grain marketing economist Chad Hart sees two potential stories this year. One is for $4 corn, and the other, $9 corn.

Current odds are for prices closer to $4 than $9, Hart told farmers attending his seminar at last week's Hawkeye Farm Show at the UNI-Dome in Cedar Falls.

If severe drought persists, corn prices could rise to $9. Demand has eroded over the past year after growing to record levels. Hart isn't convinced it will come back fast enough to eat up the crop from a trend line yield if good weather returns.

"Strong demand the past four years has led to very strong prices despite record crops," Hart said.

For the 2012 corn crop, the national season average price is $7.20, a record by $1 per bushel from the 2011 record.

"We've had a great run, and it's been because of strong demand, but I have some concerns for 2013," Hart said.

While another drought will slice into corn supplies, Hart is concerned that demand for feed, biofuels and exports was off by 1 billion bushels in 2012.

"This market knocked the snot out of demand," he said. "The question is how quickly can this demand rebound?"

U.S. farmers planted 97 million acres of corn in 2012, and if they would have harvested a trendline yield of 160 bushels per acre, that would have meant 14 billion bushels of production. Corn demand, even in record years, has been well below that.

Hart said the story also holds true for soybeans. While demand has been strong, he worries about it eroding.

The potential to overproduce was there in 2012, but the drought changed things. It wasn't until June that prices started rising, peaking at $8 for corn and $16 to $17 for beans.

"And then I heard the three most popular words in Iowa in 2012, 'better than expected,' and we saw prices drop," Hart said.

Prices today are still profitable, Hart said. 2012 will be the second best year in net farm income. Even with a short corn crop, 2012 produced the 8th biggest crop in history and the most valuable ever.

Due to high feed costs and lower per capita meat consumption as a result of the recession, hogs won't show a profit until May 2014. Beef is experiencing red ink and the cattle herd the smallest since the 1930s.

"Feed demand is eroding," Hart said.

High feed costs are also impacting corn exports, which are down significantly. Soybean exports are up 20 percent even with record high prices.

"It's due to food demand," Hart said. "Many U.S. soybeans buyers are Asian countries where vegetable oil is a key component of the diet."

Biofuel production has cut back, and Hart predicts it won't grow in the next two to three years because of an oversupply of ethanol.

"With weakening demand from livestock, exports and biofuels, the futures markets are at a $2 discount to 2012 prices," Hart said.

Current futures prices of $5.20 for corn and $12 for soybeans and ISU's cost of production estimates of $4.50 for corn and $11 for beans, still show profits for 2013. Crop insurance protection levels look good.

Soil moisture is a concern, Hart said. ISU Extension climatologist Elwynn Taylor predicts soil moisture will be short but not as bad as 2012. He sees below trendline yields at about 147 bushels.

"Think about marketings in connection with crop insurance," Hart said. "With revenue coverage, farmers can take advantage of profitable prices well before planting because they've got their bushels insured."