WOOSTER, Ohio — Farmers will enter 2014 with a much different set of numbers and market conditions than when the previous year began.
The 2013 growing season was mediocre for most producers — but it was much better than the year of record drought in 2012, and the year of record rain in 2011.
The nationwide corn harvest averaged 160.4 bushels per acre in 2013, compared to only 123.4 bu. per acre in 2012. Total production in 2013 was about 14 billion bushels, compared to just 10.8 billion in 2012. That additional supply saw prices drop to below $4 a bushel — about a third less than what they were the past couple years.
The soybean market appears more stable amid global demand that has kept prices above $13 per bushel for most of 2013. But, they too are dropping, and a lot will depend on exports.
Matt Roberts, an Ohio State University ag economist, said he’s not surprised that one “mostly-normal” year could have so much effect.
“We’ve had these high prices and we’ve been one good crop, one normal crop away from going back to $4 corn,” he said.
He spoke during the OSU Ag Policy and Outlook meeting Dec. 12 in Wooster and has been traveling the state giving similar talks.
“It’s the first decent corn yield in four years and it wasn’t that great, I would argue,” he said.
The scary part, at least for crop farmers, is that normal-weather years tend to happen more than abnormal years.
That’s why they’re called “normal,” Roberts said, and they tend to bring higher yields and more supply.
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“A second normal year and we’ll go even lower than this,” he said, with $3.60 per bushel of corn and much cheaper soybeans very possible.
Another potential setback for the corn market is the U.S. EPA’s proposal to reduce the Renewable Fuel Standard by nearly 3 billion gallons of renewable fuel in 2014.
While this could lead to less demand, Roberts isn’t so sure.
For one thing, the proposal is just that — a proposal, and it could still change or be defeated. Also, Roberts said most ethanol plants are financially sound in terms of their infrastructure. They are already built and many are already paid off or getting close.
“All they’ve (ethanol companies) got to do is sell the ethanol and DDS for more than they’re paying for the corn,” he said.
Speaking at the Ohio Grain Farmers Symposium Dec. 17 in Columbus, the National Corn Growers Association said the biggest concern is what a reduced RFS might do to the ethanol and corn industry down the road.
“It’s not what it’s doing to your prices right now, it’s what it will do in the future is because it’s taken all growth opportunity away,” said NCGA CEO Rick Tolman.
But, while lower crop prices are a detriment to some, they’re also a bit of a blessing to others — especially those who buy grain or are growing grains to feed livestock.
“This is not a pretty trend if you’re a producer,” Roberts said. “If you’re an end-user, you’re not crying about this.”
In fact, some end-users may start to expand their operation in 2014, partly as a result of low grain prices.
Roberts said hog numbers have been increasing the past couple years and poultry has been ramping up, as well. But growth is slow and will take several months before much of a difference is seen.
As farmers go into the new year, and the next five, Roberts said a big thing will be building cash, and managing risk.
Cost of production
Adding to the burden is the cost of production. Costs like seed, fuel and rent are up, while fertilizer is actually lower.
Roberts’ colleague, Economics Professor Barry Ward, predicts Ohio corn returns per acre in 2014 of $17-$213 per acre, with returns for soybeans at $62 to $248 per acre.
Wheat is projected to return $25 to $159 per acre.Ward leads production business management in OSU’s Department of Agricultural, Environmental and Development Economics. His return-per-acre projections are made using OSU Extension’s Ohio Enterprise Budgets.
To help farmers manage in the new era, Roberts is providing an online marketing workshop January through March.
Participants will use the Commodity Challenge, a program managed by the Center for Farm Financial Management at the University of Minnesota.
They will take part in a grain marketing simulation exercise that allows use of all the marketing options used in grain marketing without the risk of actually taking a position on real bushels. The program features real-time cash, futures and options quotes for corn, soybeans and wheat from local markets in Ohio.
Participants can use basis contracts, puts, calls, and can sell cash on the market — basically all of the tools they would have in real life without any of the real-life risks.