Despite drought conditions in most areas of Georgia in 2011, the state’s corn growers produced a record-high average yield, and the market is expected to maintain momentum headed into this spring.

While the business of economics often has been called the “dismal science,” the market outlook for commodities like corn continues to be good, or at least for the foreseeable future, said Nathan Smith, University of Georgia Extension economist, speaking at the recent Georgia Corn Short Course in Tifton.

“The corn market has sort of flip-flopped this year from where we were one year ago in terms of our commodities in the South,” said Smith.

“The drought impacted a lot of folks, but Georgia’s irrigated corn did well with some record-breaking yields. At the same time, other crops didn’t do so well.”

Peanuts and cotton have flip-flopped somewhat in terms of which one is driving the market, says Smith, which leaves many to wonder what that’ll do to corn.

“A general term used by economists is that the cure for high prices is high prices. In other words, if prices get high enough, they’ll affect demand and there will be an over-supply, bringing prices down. We’ve seen some of that, particularly with cotton, and with the corn report in January, we’ve seen some of that on our demand side.

“Europe also has had an impact on declining corn prices. The value of the dollar, relative to Europe, has increased, and that impacts our exports. Relative to other currencies, the dollar has been rising since 2011,” he said.

Looking at the global situation for corn, said Smith, we’re increasing our use and we have record-high production, but ending stocks remain about even with demand.

The stocks-to-use ratio for corn globally was up to about the 25 to 30 percent range in the 1990s. But in 2000-2001, the relationship changed and the corn world market began getting tighter.

“We’ve been in a downward trend for the last four years, and now we’re at a record-low stocks-to-use ratio. This is a positive trend for corn, and it’s good for the U.S., because when we look at corn, soybeans and cotton, corn is where we have a competitive advantage in the world, and they’ll come to the U.S. to buy in the long-term,” said Smith.

Georgia acreage fluctuates

Georgia corn acreage fluctuates from year to year, but this past year, it was the No. 3 crop grown in the state, with a value of about $200 million, he said. Nearly 70 percent of Georgia’s corn is irrigated.

“Last year, we increased acreage in the state, with 345,000 acres planted. Harvested acres were reduced down to 270,000 acres, so that raised our yield to a record-high 158 bushels per acre.”

Last year’s LaNiña weather trends resulted in record-high corn yields, he said. “But the trend was different in the United States. After a record-high yield year, we’ve seen two consecutive years of lower trend yields in U.S. corn, and that has helped to keep prices strong.”

The question on growers’ minds is what’ll happen this year, said Smith. “We’ve increased acres to about 92 million acres planted in the U.S. for 2011, and we’ll probably see that number go up again this year.”

Turning to the domestic supply and demand situation, Smith said it’s still relatively tight, even with reports that less corn was being fed than expected.

“Again, our production is below what total consumption is estimated to be, so it’ll bring stocks down to a historically low stocks-to-use ratio. Fundamentally, that’s still positive for corn. At the end of this past December and the first part of January, the ethanol blenders’ tax credit and the tariff that was a barrier to ethanol imports both expired.”

Ethanol as a use for corn now has exceeded the amount of corn used as feed, with about 40 percent of the corn produced now being used for ethanol production, he said.

“About one-third of that ends up back in the feed category as distiller’s grain. In the long-term, we might see imports of sugar cane ethanol but not immediately. We’re also exporting ethanol to South America, and that’ll continue.”

In examining the cash prices for corn and soybeans, Smith said soybeans maxed at about $13 per bushel in 2008, and then again in 2011, while corn went up to about $5 to $5.50 per bushel in the same time periods. This past summer, corn pushed $7 in the U.S. cash market.

The Midwest probably will plant another 3 or 4 million acres this year, said Smith, while water availability will remain a big concern for Southern producers.

Expect increased competition

“We’ll see increased competition from South America, with Argentina planting more acres, although dry weather also has affected them.”

There is the potential, said Smith, to plant 94 to 95 million acres in the U.S. in 2012. “I think we can probably keep corn acres where they are in Georgia, especially if we’re in a LaNiña weather pattern, during which corns yields historically are better. This past year will be encouraging for planting corn.”

December futures, he said, ended at about $5.59 during the second week of January.

“If we end up with a big crop, planting 4 or 5 million more acres, and we see good growing conditions in the Midwest, we’ll probably start testing a bottom of about $5.35 per bushel, and if it goes below that level, then we’ll probably see prices more in the $5-range than the $5.50 to $6-range.”

If you get your corn harvested early, said Smith, it’ll probably bring a premium. You can contract corn now for $5.75 to $6, depending on the area of the state, he added.

“It’s a hard decision to decide when to price. But you do need to go ahead and make a budget. You make good decisions if you know your costs, and you’ll know what price you need to make for a return.”

Given the current outlook, growers could see prices anywhere from $4 to $8 on corn this year, he said. 

“That’s a wide range. Our best estimate is around $6, considering where the market is now. Lock in some of those inputs whenever you lock in prices, because input prices are as volatile as crop prices.”

University of Georgia budgets show corn production costs going up from 7 to 10 percent, said Smith. Fertilizer is the highest cost, followed by seed.

“We’re getting back up to where the costs were in 2008-2009. With the yield potential that’s out there, we raised our average yield in our budgets this year to 200 bushels. We’ve got a long ways to go, so you probably don’t want to overdo contracting, but this is probably a year when you want to do some contracting.”

Looking at all budgets — from a cost and returns standpoint — peanuts come out ahead this year, based on $700-per-ton contracts, followed by corn and cotton, he said.

phollis@farmpress.com