Note: This article is from the 2011 Ohio Grain Farmers Symposium. For additional coverage, click here.
WILMINGTON, Ohio — Following a year of adverse growing conditions in various parts of the nation, and changing federal policies could make for an interesting year in the crop commodities.
Matt Roberts, an ag economist for Ohio State University, projected a shift from a demand-driven market, to one that is supply driven, during the annual grain farmers symposium held Dec. 15 in Wilmington.
“Where we sit now in 2011 we’re in a different market than the last five years,” he said. “This year we’re not in a demand driven market, we’re in a supply driven market.”
Corn yield took a significant hit this year, going from a projected 161 bushels per acre, to actual results that averaged only 146 bushels per acre.
The higher grain prices over the past year also caused a reduction in the demand for livestock feed.
“High prices have led to a contraction in the domestic livestock industry and that’s not at all surprising,” he said.
A big factor in the corn market will be the expiration of the ethanol blender’s credit, properly called the Volumetric Ethanol Excise Tax Credit, which had been providing 45 cents per every gallon of ethanol blended with gasoline.
The policy expires Dec. 31, unless congressional or presidential action is taken to continue the program, which Roberts said is unlikely to happen.
The expiration of VEETC could bring several changes within the ethanol and corn markets, but Roberts said one thing is certain is the federal Renewable Fuel Standard, which requires a minimum ethanol production of 13.2 billion gallons in 2012. That’s still about 1.8 billion gallons short of peak capacity to produce ethanol, Roberts said, and more plants are still being built.
Without the blender’s credit, he predicts E85 will exceed the wholesale price per gallon of gasoline, and the market for that type of ethanol will likely decline.
“That will reduce our competitiveness on the export market,” he said. “We will become less competitive.”
Roberts said he sees more opportunity for E15, depending on how well the market accepts the product. Overall, ethanol production will continue, but in a much more challenging market.
“Margins are going to drop in the ethanol business over the coming six to eighteen months to near shutdown levels,” he predicted, with new plants struggling for their survival. “We’re still going to be making ethanol, we’re just going to be doing it on very tight margins.”
Still, Roberts expects the loss of VEETC will have a small effect on the corn market and won’t necessarily be immediate. Overall, he expects VEETC’s expiration could cost the corn market about 15-25 cents per bushel.
Overall, though, the many forces impacting the corn market could push the price below $4 a bushel at harvest, a sharp drop from the nearly $6 per bushel seen this year.
“This is an entirely likely, entirely possible scenario,” he said. “I don’t think most growers are taking it serious enough.”
Soybeans and wheat
Roberts said soybean consumption has risen significantly, but so has the price per bushel. The higher soybean prices within the United States have led to lower exports.
“There’s a lot of product out there and we’re pretty high priced,” he said. “People aren’t buying ours.”
He predicts cash soybean prices in 2012 could average $11.10 per bushel.
The biggest thing in the wheat market for Ohio and eastern Pennsylvania is poor weather for planting, which has had a significant reduction in acres planted this fall. Crop condition through spring and harvest, and the amount of wheat carried over from 2011, will be important factors.