Are You Ready For Drop In Crop Prices This Fall?

Are You Ready For Drop In Crop Prices This Fall?

2013 cash corn and bean prices will likely decline 20% to 30% from record highs of 2012.

Cash prices for corn and beans are set to decline even more than they have in recent weeks as the market gets a clearer picture of the expected larger size of the 2013 crops to be harvested this fall. Futures market prices are already reflecting the situation and cash prices have been slipping from their earlier lofty levels. The trend to lower cash prices this fall would be the opposite of what happened the past few years at harvest.

LOWER CROP PRICES AHEAD: Large corn and soybean planted acres in 2013 will be confirmed in USDA's monthly crop production reports in August through October. Final yield estimates will be the key determining factor impacting average farm cash prices projected for this year's crop. Probability appears great that prices this fall will be a lot lower than last fall.

Steve Johnson, an Iowa State University Extension farm management specialist, sees the situation shaping up this way. Large corn and soybean planted acres will likely be confirmed in USDA's monthly production reports in August through October. Final yield estimates will likely be the key determining factor that impacts the average farm cash price projected for the 2013 crop.

Harvest, storage and marketing plans need to be developed in light of potential for a late Iowa harvest

The probability appears great that prices will decline by 20% to 30% or more from the record high prices realized in 2012. "Harvest, storage and marketing plans need to be developed in light of the risk of a later-than-normal Iowa harvest and higher moisture content of the grain from the late planted crops," says Johnson. He offers the following observations to help farmers develop and fine-tune their marketing plans.~~~PAGE_BREAK_HERE~~~

The most recent USDA World Agricultural Supply & Demand Estimates, or WASDE, projections were released July 11, 2013. The USDA economists project corn ending stocks for the 2012-13 marketing year ending this August 31 at 729 million bushels, and they project that to climb to 1.959 billion bushels at the end of the 2013-14 marketing year. National cash price average would decline from a $6.90 per bushel average to a $4.80 per bushel midpoint by August 31, 2014. That's a drop of approximately 30% in average farm cash prices in just one marketing year to the next. 

Note in the corn table accompanying this article that the left-hand column reflects a range in the USDA projections of $4.40 to $5.20 per bushel or that $4.80 per bushel midpoint price for the 2013-14 crop. This range will likely be narrow as the January final production numbers for the 2013 crops are known and demand becomes clearer. 

In the subsequent columns are the projections for corn supply and demand from Brugler Marketing & Management, LLC. The column deemed "Low" has reduced planted acres, harvested acres and a final national yield of 151 bushels per acre. Note feed demand is projected at 400 million bushels below USDA's forecast and rises only with "High" production. 

Note moving to the right for each subsequent column, "Medium" and "High" adjusts the corn production higher and makes minor changes in the demand for corn. Thus, as U.S. ending stocks increase for the 2013-14 marketing year, the average farm cash price declines.

Look at the probability of distribution for cash corn prices -- they'll average lower for 2013 crop corn

Let's use a bell-shaped curve to depict Brugler's projections for the three different price scenarios. Consider a normal distribution of the national average farm cash price projections for the 2013 U.S. corn crop of $5.00, $4.40 and $4.25 per bushel. Despite naysayers, the 2013 corn crop to be harvested appears to be the largest in history. Also, keep in mind the demand for corn declined significantly in the 2012-13 marketing year with the record high cash prices.~~~PAGE_BREAK_HERE~~~

These prices assume normal 2013 growing season weather. Any changes in planted and harvested acres will be within the margin of error estimated in the USDA June Acreage Report.  

Assuming normal distribution, the percent probability of national average cash prices for corn sold between September 1, 2013 and August 31, 2014 at $5.00 per bushel would 18%. The probability of $4.40 per bushel corn would be approximately 64% and $4.25 per bushel would 18%. While no one can predict with great accuracy these numbers, the odds now favor a much larger U.S. corn production, competition from increasing global feed grain stocks and a significant increase in ending stocks.

Considering 2013 crop soybean forecasts, you can see that the national average price will decline

That same July 11, 2013 USDA World Agricultural Supply & Demand Estimates, or WASDE, increases the U.S. soybean ending stocks from the 2012-13 marketing year of 125 million to 295 million bushels at the end of the 2013-14 marketing year. USDA projects that the national average cash farm price would decline from a $14 per bushel average to a midpoint of $10.75 per bushel by August 31, 2014. That's a drop of approximately 20% in average farm cash prices for soybeans from one marketing year to the next. 

Note in the soybean table accompanying this article the left-hand column reflects a range of the USDA projections of $9.75 to $11.75 per bushel or that $10.75 per bushel midpoint price for the 2013-14 crop. This range will likely narrow as the January final production numbers for the 2013 crops are known and demand becomes clearer. Also, South American soybean production during the next 8 months will have a large influence on the demand for U.S. soybeans and impact that final cash price.~~~PAGE_BREAK_HERE~~~

In the subsequent columns of the table are the projections for soybean supply and demand from Brugler. The column deemed "Low" has reduced harvested acres and a final national yield of 42 bushels per acre. Note moving to the right each subsequent column adjusts the soybean production higher and makes minor changes in the demand for soybeans. 

Probability of distribution of cash soybean prices -- they'll average lower for 2013 crop beans

A bell-shaped curve is again used to depict Brugler's projections for these 3 different price scenarios. Consider a normal distribution of the national average farm cash price projections for the 2013-14 U.S. soybean crop of $11.50, $10.50 and $10.35 per bushel. This years' soybean crop will be very sensitive to late summer weather. A later than normal planted crop means weather extremes will be of greater importance. A change of one bushel per acre in the national final yield changes ending stocks by over 76 million bushels. 

 Conclusion: The large corn and soybean planted acres will likely be confirmed for 2013 in USDA's monthly production reports issued in August through October. The August report will be released August 12. The final yield estimates will likely be the final determining factor that impacts the average farm cash price projected for the 2013 crop.

The probability appears great that 2013 corn and soybean cash prices will decline by roughly 20% to 30% from the record high prices realized in 2012. Subsequent harvest, storage and marketing plans need to be developed in the light of the risk of a later Iowa harvest and higher moisture content of the late planted crops.

TAGS: USDA Extension
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