"There is a very unlimited upside for corn prices" in today's market, and the outlook is even less optimistic for soybeans, University of Wisconsin-Extension Service marketing specialist Brenda Boetel told attendees at the 2014 Agronomy Field Day sponsored by Country Visions Cooperative and the Fond du Lac County Extension Service office.
From several perspectives, starting with the prediction for record production of both corn and soybeans in the United States, the price outlook is not good for growers, Boetel said. She hopes many of them used the tools available for price protection before the lower prices set in gradually this year as the forecast for record crops solidified.
Those who did not protect their prices with one of more those tools could well be facing "cash flow challenges" with their 2014 crops, Boetel said. She suggested they watch for any upward price ticks and indicated that at the moment there is no potential for returns from storing 2014 production unless there are surprises during the harvest in October.
Boetel considers a futures price of $3.55 per bushel to be the breaking point for a "drastic drop" in corn prices to about $3.25 per bushel. The September futures closed at $3.56 per bushel on the field day.
The November soybean futures settled at $10.28 per bushel on the field day (Aug. 26). Boetel predicted soybean prices could fall to $8.90 per bushel during this year's harvest. At this time a year ago, the futures price was $12.71 per bushel, she noted.
Unless a very early killing freeze strikes a large portion of the Corn Belt or some other outside event intervenes, Boetel doesn't see much of a chance for a bump in the prices for the 2014 crop and warned that down price cycles often last for two years. To a question about obtaining price protection for one's 2015 crop, she suggested considering it for no more than 10 percent of production.
Corn grain growers in the parts of Wisconsin where the crop's maturity is lagging might enjoy a somewhat stronger basis than is likely where the yields will be plentiful, Boetel said. She suggested that the marketing cost of 20 cents per bushel plus the absorption of a 2-cent per bushel monthly storage cost would probably not turn out to be a good strategy for selling one's 2014 corn crop.
The prospect for a second consecutive year of very large corn crop without accompanying increases in usage accounts for the possibility that the 2014 prices could drop to one-half of the average price for the drought-affected 2012 crop, Boetel said.
According to the early August crop outlook reported by the U.S. Department of Agriculture, this year's crop could average 167.4 bushels from 83.8 million harvested acres for a total of 14.031 billion bushels. She pointed out that the rating of 71 percent of the crop as excellent or good is the highest percentage in 10 years.
The trend line for the nation's corn crop suggests an average yield of 165 bushels per acre, Boetel said. But history shows that actual yields tend to top the August prediction, creating the possibility of a realized average yield of 173 bushels.
That would agree with the private Pro Farmer's estimate of a 171 to 175 bushel average yield that is based on its recent tour of several major corn states, Boetel remarked. Even a cutback of 2 million in the number of harvested acres would be offset by a 4-bushel per acre increase in the average yield, she pointed out.
Having a slight drop in the predicted usage of corn grown in the United States in the upcoming year compared to the past year is certainly not favorable for prices, Boetel pointed out. She reviewed the USDA prediction on usage for the major categories of feed and residual; ethanol for fuel; exports; and non-ethanol (seed, feed and industrial).
That total is 13.435 billion bushels compared to the availability of some 15.243 billion bushels from the 2014 crop and 1.181 billion bushels in carryover from 2013. This would leave a large carryover of 1.808 billion bushels at the end of August in 2015, representing a stocks to use carryover of 13.46 percent compared to 7.39 and 8.68 percent in the past two market years.
For the use categories, Boetel indicated that the predicted slight increase of 50 million bushels to 5.25 billion bushels for feed and residual could easily be offset by an extra supply of dried distiller's grain, which is a byproduct from the production of ethanol.
The predicted use of 5.075 billion bushels of corn to make ethanol would fall short of the 5.12 billion bushels used in the market year that is just ending, Boetel said. A yet-to-be-disclosed change in the the federal mandate on ethanol production is likely to fall between 13 and 14 billion gallons, which would result in minimal change in corn usage.
China's recent decision to suspend imports of dried distiller's grains is likely to cut into domestic use of corn for livestock feed in the United States, Boetel predicted. In addition, China has boosted its average per-acre corn yields from 73 bushels in 1994 to 96 bushels in 2013 on a similar amount of corn acres — about 91 million — as in the United States.
The ending stocks of corn around the world are the highest in 20 years, she continued. In addition, the very recent increase in the value of the U.S. dollar makes its export product more expensive to buyers.
After falling to about 20 percent as a result of price jump with its drought-stricken 2012 crop, the United States has rebounded to having a 31 percent share of the world's corn export market, Boetel pointed out. She noted that Brazil's anticipated harvest of 3.398 billion bushels in early 2015 would be 184 million bushels less than this year while Argentina's projected crop of 1.194 billion bushels would be 92 million more for this year.
The story is similar with soybeans, for which the United States accounts for 36 percent of the world's production compared to the 51 percent claimed by the South American duo of Brazil and Argentina. Boetel noted that the predicted U.S. crop of 3.816 billion bushels would top Brazil's most recent crop of 3.582 billion bushels.
For this year's average soybean yield, the USDA's prediction of 45.4 bushels per acre slightly exceeds Pro Farmer's estimate of 43 to 45 bushels, she said. If 84.1 million acres are harvested, that would be an increase from the 75.9 million acres in 2013.
As with corn, the anticipated demand of 3.541 billion bushels for crushing, exports, feed and seed would leave a carryover of 430 million bushels a year from now — more than triple the current carryover of 140 million bushels, Boetel said.
Boetel also reviewed the basics of the wheat market but acknowledged that she does not monitor it as closely as the other commodities. She observed, however, that wheat prices tend to be a precursor for corn and soybeans.
Grown around the world, wheat is enjoying a very productive year. She cited a very high yield of 572 million bushels of spring wheat in the United States this year and mentioned a quality concern with some of this year's wheat crop.
With no major statistical changes pertaining to wheat production and use in the United States, recent prices have generally been in a sideways pattern, Boetel noted. The September futures price for hard red winter wheat closed at $5.41½ per bushel on the field day, but the USDA's predicted low-end average price for all wheat in the new marketing year is $5.80 per bushel.
An overall problem plaguing the grain sector is the shortage of railroad cars, Boetel said. She cited shipping delays of 17 to 60 days as a result.