Economist: Corn prices increase, wheat and soybeans fall flat

WEST LAFAYETTE, Ind. — While prices for the 2009 corn crop may continue to slowly climb as corn demand increases in 2010, soybean and wheat prices have a slightly more dismal outlook, said Chris Hurt, Purdue University agricultural economist.

“As we look down the road to 2010, demand is going to continue for corn,” Hurt said. “We know that from two aspects, one of them being biofuels. Ethanol production will continue to grow in 2010 and 2011. And, secondly, as the world economy recovers, we’re going to see more demand for U.S. corn exports.”

Best pricing strategy

With the increased demand, Hurt said storing the corn crop might be the best pricing strategy.

“As we talk about price levels, and of course this will vary by location, but it feels like we will probably see corn prices get back above $4 per bushel at some point,” he said. “Storage seems to be the best strategy on corn from this point because there are very good prospects for an overall increase on corn prices.”

Because 2009 was a record corn yield year in the U.S., Hurt said that while prices may increase to $4, farmers likely wouldn’t see corn return to extremely high prices.

“In terms of world corn inventory, we’re going to see our ending stocks this year for the 2009-10 marketing year at about 16.5 percent of annual use,” he said. “In the really extreme high prices on corn, we got down to about 13 percent. While 16.5 percent is not a surplus, the world does not have as desperate and grave a concern for running out of corn.”

Ending stocks

The ending stocks for soybeans for the 2009-10 marketing year will likely be somewhere around 25 percent of the year’s use, Hurt said, so soybean prices are not likely to average higher than about $10 for the 2009 crop.

“Soybean stocks are going to be highly dependent upon the size of the South American crop, which is being planted now,” Hurt said. “Those soybeans will be harvested from March to May 2010. There is anticipation that we will see world soybean production increase by about 1.3 billion bushels, and more than a billion of those will be from South American production areas.

“The stronger prices we have for soybeans in the U.S. this fall have helped stimulate acreage in South America. The big world soybean stock increases will come if yields are normal this year. The problem for South America this past year was drought and very low yields for the crop they produced in the harsh spring of 2009. So, soybeans do have the prospect of returning to relatively high inventories around the world at this point.”

Higher world inventories

Higher world inventories will mean soybean prices are less likely to increase as the marketing year continues.

“If the South American crop is the magnitude that is anticipated, then there’s a possibility that we would see prices very flat in the winter time and even decrease some as we go into next spring and summer,” Hurt said.

“So, this would suggest more aggressive pricing of soybeans in the fall and winter, unlike corn where prices will continue to increase throughout the storage season.”

Of the three largest crops in the U.S., Hurt said producers should expect the flattest price prospects on wheat.

“What we see with wheat is a restoring of pretty large world inventories and a surplus here in the U.S.,” he said. “Ending world wheat stocks for the 2009-10 marketing year will be about 29 percent. Just to compare, when we saw the high prices in 2008, ending stocks were around 18 percent.”

Factors

With these, and any other commodities, there always are some factors that could make the analysis wrong, Hurt said.

One of those factors, on the soybean side of things, would be weather problems during the South American growing season that damaged the crop.

“If that were to happen, there would be a prospect for soybean prices to move higher,” Hurt said.

Another factor, tied to the weakness of the U.S. dollar, would be inflation investing.

“There is a group of investors that is concerned inflation will come back into our economy,” Hurt said. “If inflation investors were to come into the market and aggressively buy soybeans, there certainly is the opportunity for those soybean prices to move higher and roughly defy the fundamentals that say there are plenty of soybeans.”

Damage

Damage to foreign wheat crops also could defy some of the price logic.

“There always are possibilities for weather concerns in the southern hemisphere, particularly Australia, that could give us some higher wheat prices.”