Has the Sun Set on High Corn Prices?

Prairie Gleanings

Analysts don't see much hope for a market rally moving into the 2014 crop season.

Published on: October 4, 2013

This week, I interviewed several market analysts on corn price projections. Not one of them was optimistic about the potential for a rally.

Pondering these price downturns, experts agree on several things. First off, this was expected. Once the 2012 drought had firmly established itself, market analysts started warning about the short crop, long tail scenario.

Next, the ethanol industry is mature. In past years, ethanol producers had not yet hit the blend wall, i.e. the amount needed to blend 10% ethanol into the U.S. fuel supply. We’re now at the stage where drivers must start replacing (or choosing) ethanol over gasoline. Thus far, we haven’t figured out how to do that effectively.

Once this crop is in the bin, its time to get down to the nitty gritty for the 2014 operating budget.
Once this crop is in the bin, it's time to get down to the nitty gritty for the 2014 operating budget.

Still, every analyst (and a couple farmers) noted this is not like the 1980s. By in large, most folks are sitting on healthy cash reserves and low debt levels.

One farmer wondered if the lower grain prices will create some hesitancy when it comes to taking on more land. If so, does that make this a good time to expand?

It’s a great question and one many may be faced with in coming years. Of course, whether or not the best place for cash is in land or more rental ground is up to each individual operation.

In the meantime, once this crop is in the bin, folks need to focus closely on operating budgets. One of the farmers I spoke with said this is not a good year to go in without knowing your cost of production.

For 2014, University of Illinois ag economist Gary Schnitkey anticipates an average corn price of $4.60/bushel. For soybeans, he expects $11/bushel.

Schnitkey also notes there’s not a lot of carry in the market. So, you better have a good understanding on your cost of storage.

Along with these warnings, experts note expectations should probably be lower. Again, they see little chance for a significant rally.