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Hart: Markets don't know which way to run

By Jean Caspers-Simmet

Date Modified: 09/23/2013 9:32 AM

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NASHUA — Uncertainty about crop quality and maturity are in play and the markets don't know which way to run, Chad Hart, Iowa State University Extension grain marketing economist, told farmers at last week's Northeast Research Farm field day at Nashua.

"Over the past three weeks, the corn market couldn't get down fast enough, and now it can't go up quick enough," Hart said. "It's trying to react to conflicting information. Every time we look at these crops, the outlook changes because of the delays in planting and the delay in maturity. We really don't know what we have."

Hart said USDA's numbers are much more flexible than usual. Not two days after USDA released its August crop production report listing 97.4 million planted corn acres, another part of USDA said 3 million corn acres were prevented planting. Expect some adjustments in the September report.

"The numbers were USDA's best guess as of Aug. 1, back before they knew how much was prevented planting," Hart said.

He is also watching USDA's yield numbers.

"Right now they've got us at 154.4 bushels (national average yield), about 9 percent below trend," Hart said. "Take another 1 percent off that, and you have a drought."

USDA defines a drought as yields falling 10 percent below trend.

Hart said that when looking at crop conditions central Iowa is not only the worst spot in Iowa, it's the worst spot in the nation.

"I've spent the last few weeks in Indiana and Illinois, and the crop looks a lot better there than it does here," Hart said. "Indiana is staring at record yields. Their crop looks like ours should look. The market is running back and forth because when it looks west it sees a very weak crop, and when it looks east the crop looks fairly good. Either way it looks, it sees a lot of corn plants."

Even with yields 9 percent below trend, the nation is looking at record corn production by more than 600 million bushels.

"We could take a pretty good haircut off this crop, and we're still talking about record corn," Hart said.

USDA is forecasting national average cash price of $4.90 per bushel for the 2013-14 corn crop, down from $6.95 for 2012-13.

"Five years ago, you would have been ecstatic," Hart said. "Now it's not nearly enough. We've seen record prices and incredible returns to agriculture over the last few years. It's hard to get excited about $5 corn when you've been staring at $7 to $8 corn this summer. That great run is coming to an end, and in Iowa it's coming to an end when we're the ones suffering the crop loss."

Hart will watch acreage, yield and exports in the September USDA crop production report.

"I think we'll see that acreage number move down," Hart said. "Normally that sucker is solid in June, but not this year given the delays we had."

There will be a debate about bad spots in fields and if they are harvested acres. If the combine drives through them, they're harvested acres.

"We could have a half-way decent yield in Iowa if you look at it that way because we cut down on our harvested acres," Hart said.

He will watch exports because that's where the biggest demand reduction came last year with the short corn crop. Corn exports plummeted from 1.543 billion bushels to 715 million bushels in 2012 to 2013. USDA is forecasting exports to move up to 1.225 billion bushels for 2013-14.

"I'm looking to see how quickly our international demand rebounds from $7 to $8 corn," Hart said. "USDA says we'll see some recovery, but we won't be back to pre-drought levels."

USDA's soybean production numbers are even more uncertain due to how delayed the crop is and how much potential there is for an early frost.

"Right now USDA is forecasting the third largest soybean crop this country has ever had (3.42 billion bushels)," Hart said. "We get an early freeze and we can chop a lot off."

Soybean exports are forecast to rebound in the coming year but won't be back to record levels due to growing global competition, Hart said. Argentina and Brazil continue to grow soybean exports. Competition is also coming from the Ukraine, which exports nearly all its soybean crop.

USDA's national average cash soybean price is $11.35 for the 2013-14 crop.

"That's not stellar, but we're coming off three years of record prices," Hart said.

Looking at ISU's production cost estimates of $4.50 per bushel for corn and $11 for soybeans, both crops have modest margins.

"There's some profit potential, but it's a lot smaller than the last few years," Hart said. "When you look at the futures market, the average cash price is even smaller, especially for corn at about $4.60. Beans are the stronger crop with the futures average cash price in the mid $12s. A lot of that is due to weather uncertainty and the relative strength of exports."