What is in this article?:
- Steps taken in December can help lock in 2013 corn, soybean profits
- Shortages may occur
• In an era of highly cyclical and volatile grain and fertilizer markets, producers in December 2012 have an excellent opportunity to consider ways to limit risk and stabilize some of their production costs in 2013.
• Producers should look for ways to reduce the uncertainty of spot markets for input and develop a plan to reduce risk with insurance.
Corn and soybean prices reached all time highs during the summer of 2012, caused by the devastating drought in the Midwest.
During such periods, producers will increase production to cash in on the high prices. The increased production will result in additional products sold in the world marketplace which will reduce demand for the products and depress prices for producers.
In times of high prices, it becomes profitable for producers to plant crops on marginal crop land, which further increases harvested bushels. Consequently, the potential for larger supplies of corn and soybeans available in the marketplace will put downward pressure on prices and profit margins, if 2013 is a normal crop year.
Many producers are reluctant to forward contract part of their 2013 corn and soybean crops during December 2012 because they are not sure of 2013 input costs.
Research at Virginia Tech shows that to produce 150 bushels of corn per acre will require 165 pounds of nitrogen, 86 pounds of phosphate and 57 pounds of potash.
Using late November 2012 fertilizer prices and corn seed price of $200 per bag and fertilizer input costs ($215), these costs make up about 45 percent of total production costs to produce 150 bushels per acre yield.
In addition, soybeans require 52 pounds of phosphate and 91 pounds of potash to yield 50 bushels per acre.
With soybean seed currently priced at $20 per bag of seed and these fertilizer inputs priced at $90 per acre, these items are approximately 39 percent of total production costs to grow 50 bushel soybeans.
Thus seed and fertilize costs make up a significant part of total production costs.
In late November 2012, fertilizer dealers in Virginia were projecting that 2013 prices will be comparable to 2012 prices with one major caveat.
The 2012 drought has significantly reduced water levels on the Mississippi River where barges are major transporters of fertilizer to dealers in the Midwest. If water levels remain low in the next three months, it is highly likely the Mississippi River will be closed to barges from St. Louis to the Gulf of Mexico.