How will your farm operating budget look with $4.80 corn and $10.50 soybeans? Many farmers will have a problem covering their breakeven cost with USDA’s projection for the average prices of the 2013 corn and soybean crops. Nevertheless, those prices were suggested Thursday at the annual USDA Outlook Forum during the presentation of Chief Economist Joe Glauber.
The official USDA projections revealed by Glauber in his speech and in his slides are based on large acreage, a return to normal weather, and trend line yields. He says the high prices for the 2012 crop will encourage large plantings, domestically and globally.
USDA is expecting about 230 million acres of corn, beans, and wheat, the largest since 1982. Included in that is an expectation for 96.5 million acres of corn and 77.5 million acres of beans, which would equal the 2009 high for beans. Part of the reason for increased soybean acre is an increase in soft red winter wheat for double-cropping along with reduced CRP acreage.
Along with increased acres are USDA’s ideas for increased yields, based on a return to more normal weather. USDA acknowledges that over half of the U.S. remains under a drought influence, but Glauber says there are several reasons to expect a normal trend:
- First, we have already seen some improvement in the eastern Corn Belt. While much of Indiana and Illinois was in drought throughout much of the summer, fall and winter rainfall has improved conditions there.
- Second, studies suggest that there is little correlation between seasonal precipitation in one year and the next. A dry summer in 2012 has little implication for summer precipitation in 2013.
- Third, research shows that corn and soybean yields are largely determined by summer weather conditions, with July weather being the most important. There is little evidence to suggest that low preseason moisture levels have significant impacts on corn and soybean yields.
With larger US and world supplies, Glauber says prices will be lower for most grains and oilseeds. He forecast a $4.80 average for corn, down 33 percent from 2012 prices, and that would be the lowest since 2009/2010. The same is expected for soybeans, with a 27 percent decline to $10.50.
Glauber says the reason that corn prices rose aggressively the past several years is now contributing to lower demand, and that is ethanol. Use for ethanol topped 5 billion bushels between 2010 and 2012, but higher corn prices tightened ethanol margins, production was cut back and now overall motor fuel demand has also declined. Demand has dropped due to fewer miles being driven and increased fuel efficiency for those miles. While export markets have provided increased sales, but competition from Brazil and trade restrictions from Europe have diminished that opportunity.