If you’ve switched much of your cotton acreage over to corn this season, and you’ve sold corn, you’re probably in good shape going into harvest next fall, according to Richard Brock, with Brock Associates, a speaker at the Mid-South Farm and Gin Show.
“But it may not be worth a hoot if you didn’t (sell corn). I think some of you may have wished you would’ve stayed with cotton.” Brock’s comments came as cotton prices were beginning a surge from the mid-80s to the high-80s, and corn prices for 2013 around $6.
Brock based his comments on the possibility of a break in corn prices due to falling demand and a U.S. corn crop that is looming large.
“Two things have happened in the last two years that people in this room are going to live to regret – $2 cotton and $7.50 corn. This has changed the structure of both markets. We lost demand. Once you lose demand, it’s a 5-year to 10-year period to get that back. You have to keep prices low for a long time.”
Behind the currently high price for corn was last year’s disastrous U.S. corn crop, says Brock. “Corn producers planted 97.2 million acres of corn in 2012, but only harvested an average of 123.4 bushels, a significant drop from the 2011 average of nearly 148 bushels, (which in itself was a below trend line yield). Corn’s stocks-to-use ratio dropped from 7.9 percent to 5.6 percent.”
As a result, corn prices took off and demand took a holiday.
USDA estimates that for the current marketing year, total corn use will have dropped from 12.5 billion bushels in 2011-12 to 11.2 billion bushels in 2012-13, due mostly to a 643 million bushel decline in exports, from 1.543 billion bushels to 900 million bushels. Brock still isn’t sure whether the latter estimate is even attainable. “That’s what $7.50 corn will do.”
The real story
“All everybody wants to talk about today is the weather and corn planted acres, but the real story is that exports, feed usage and corn for ethanol are down.”
Corn carryover for 2012-13 is estimated at 669 million bushels, Brock said. “That is really tight. That’s what everybody wants to talk about in the coffee shop. The cash corn market right now is hopping like there’s no tomorrow. You have basis levels that are the highest they’ve ever been in old crop corn. But there are two markets, old crop and new crop.”
In a recent outlook, USDA estimated that the United States would plant 96.5 million acres of corn this coming year, but Brock believes even his own estimate is low at 98 million acres. “I think we will have to raise it to 99 million acres. However, you will be bringing in marginal acreage that you won’t make big yields on. So we will probably not get trend line yields.”
But if trend line yields, or something close to it, are attained, carryover jumps from 669 bushels to 3.2 million bushels the following year. “That’s a lot corn. The function of a market is to ration supply. That’s what price is for. If you get too much of something, the function of price is to get low enough that we will use it. If you get too little of something, the function of price is to get high enough so that we don’t run out.”
Brock says many U.S. livestock producers “are looking at the potential for corn getting really dirt cheap, so they're expanding right now so they’ll be able to feed really cheap corn. Everybody in the business sees this freight train coming, which will hit about September.”
Brock believes overall farm revenue will again be up in 2013, especially since “a lot of farmers are paying up for crop revenue insurance because of what happened last year. The scary part is 2014. If I’m close to being right, we’re going to be looking at some really low prices, and less revenue.”
While Brock is pessimistic on corn price and gross revenue, he’s a little more optimistic on profit. “Most producers are better off with $4 corn and 250-bushel yields than 140-bushel yields and $7 corn. You do have to think in terms of profit rather than price. This is not the end of the corn industry. Everybody is still going to make money, but the profit is going to come in another way.”
USDA’s estimate of a 2013-14 average cash soybean price of $10.50, “implies even lower prices at harvest,” Brock said.
Brock says the tightness in old crop soybeans will add support to that market, “but don’t confuse old with the new because $13 soybeans are still high priced, and any rally needs to be sold. Farming is cyclical, producers need to remember that. Producers under age 50 really haven’t seen really bad times in farming. Most of the others have been through this before. Bad times don’t last forever, but unfortunately the good ones don't either.”
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