While farmers saw good commodity prices in 2012 — especially for corn and soybeans — they should avoid getting caught up on the high prices of the past.
“We had a pretty good year, but don’t get caught up on $17 soybeans and $8 corn, because I think those prices are probably behind us. We need to be looking forward,” says Max Runge, Auburn University Extension economist.
Runge discussed the economics of corn production at the recent Central Alabama Corn Production Meeting held in Autaugaville.
“This past spring, after planting intentions were known, there was talk of $4 corn and $10 soybeans,” says Runge.
“The drought hit, and then we started talking about $10 corn and $20 soybeans. That didn’t materialize either. But we saw double-crop soybeans — soybeans after corn — planted in Alabama, in all regions of the state. I heard that some in the Tennessee Valley made 30 bushels per acre, which is a pretty good risk at $15 per bushel.”
The primary issues impacting commodity prices continue to be the economy, South America, seed supply, the farm bill, crop insurance and weather, he says.
Climatologists study droughts from 1890 to today, says Runge, and the shortest drought was 18 months, with the 1930 and 1950 droughts being 51 and 47 months long, respectively.
“So even if we’re in the shortest drought, that still may cover the 2013 crop year. It’s a possibility, as we continue to be extremely dry in east Alabama.”
Drought already is affecting barge traffic on the Mississippi River, says Runge. “They’re already putting less on them, and with fewer tons per barge, reductions are already in place.”
South America is the key player in everything, he adds. “After soybean and corn prices hit their highs, plantings increased in South America. And, for the most part, their weather conditions look pretty good right now.”
Looking at yield estimates from 2012, in February, corn was pegged at about 164 bushels per acre, excluding the 2011 crop.
“In May, they said the average U.S. corn yield was going to be 166 bushels per acre. In July, we started to see the effects of drought, and the estimate went down to 146. This was followed in September by an average estimated yield of 122.8 bushels per acre. According to the yield trend, we should have been at about 166 bushels.”
This had a huge effect on prices last year, says Runge.
“In September of 2012, we got a contract high of $8.31. For our 2013 contract, the high was $6.98. They thought this was going to be a relatively ‘one season’ weather problem, so those record-high prices didn’t equate into this crop year.”
U.S. corn production was down 13 percent in 2012, soybeans were down 2 percent, cotton was up 13 percent, and peanuts were up 77 percent.
“In Alabama, we were basically equal to our corn production in 2011, we were up by 39 percent on soybeans, up slightly on cotton, and up significantly on peanuts.”
Turning to yields in 2012 versus 2011, Runge says U.S. corn was down quite a bit, soybeans not much, cotton was about the same, and peanuts were significantly higher.
“In Alabama, our corn yields were down from the previous year, soybeans were up, cotton was up, and peanuts were up. Cotton yields were a record-high 891 pounds per acre in Alabama this past year, breaking the old record — which had stood since 1985 — by almost 100 pounds, and peanuts were slightly higher than the previous record. Overall, 2012 was a pretty good year, and prices were pretty good too.”
Compared to a year ago, Runge says corn and soybean prices are higher, cotton is down slightly, and wheat prices are up significantly.
“It is still extremely dry through the Plains area and in the Midwest. In Alabama, it’s dry in the east-central area of the state. We’re not out of the drought yet. It’ll take a lot more rain yet to get the Mississippi River level up.”
The weather outlook, from Dec. 6 through the end of February, predicts the drought will persist or intensify in the Midwest, he says.
“We are in a neutral phase weather-wise, so we’ll probably have some periods of very cold weather.”
The latest crop budgets from Southern Illinois University show a return to operator and land of almost $467 per acre from corn, $314 from soybeans, $152 from wheat, and $204 on double-cropped.
“If you’re looking at it from a budget perspective, there will be a lot of corn grown in the Midwest this year. If corn is $6 per bushel, soybeans will have to get up to about $16 to pull acres away from corn in the Midwest.”
Looking at production input costs, nitrogen will be up this year and phosphate and potassium will be down slightly, he says.
“There will probably be a shortage of seed, especially on specific varieties you might want. The cost of money should be down a little bit, as interest rates will hang in there fairly low. The Federal Reserve says it will keep the cost of money low until unemployment reaches 6.5 percent, and we’re now at 7.7 percent”.
Land rent should be steady, says Runge. “Peanut acres will be down, with a tremendous of peanuts in the warehouse. Cotton acres will be down, but some growers will stick with their rotations. Eighty cents or so per pound could pull some acres from corn.”
Runge says it’ll be interesting to watch the cattle market this year. “Have you priced steak recently? They’re really expensive. Our cattle numbers are down, which means that one of the main uses for corn is down.”
He advises growers to price some of their crops early.
“I say that with hesitation, because if the drought goes through the 2013 crop year, we could see rallies like we saw this past year. That’s an unknown. The opportunity is there to price early in 2013, and watch for rallies. We’re seeing more and more variability in these commodity markets as commercial funds come in and out.
“If you can get some corn in early and get it out early, toward the end of July, you might get a premium. There could be some shortage in that July to early August time period.
“As we get into 2013, I think we could see some higher prices on July corn. I also think we’ll see some opportunities to book some cotton at more than 80 cents per pound.”