Increased global grain production means lower prices for growers

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Increased global grain production and lower domestic demand for corn for ethanol means crop producers should prepare now for lower grain prices in 2014, says an expert from Ohio State University's College of Food, Agricultural, and Environmental Sciences.

"Prices reflect that we have moved from an era of scarcity to one of adequate inventories and prices have responded by moving lower," said Matt Roberts, an Ohio State University Extension economist. "We are already seeing lower prices come into the market, and unless U.S. or South American acreage declines, those prices are likely to continue to move lower.

"The prices we had earlier in the year aren't guaranteed to return."

OSU Extension is the outreach arm of the college.

Roberts spoke Nov. 25 during the kickoff of the college's 2013-2014 Agricultural Policy and Outlook series. The event initiated a series of local meetings to be held statewide through the end of the year. Dates and times for the meetings can be found at http://go.osu.edu/2014outlook.

The event featured presentations by experts from the college's Department of Agricultural, Environmental and Development Economics (AEDE), who discussed issues the food and agricultural community should expect in 2014. Some examples include policy changes and market behavior with respect to farm, food and energy resources, and the environment.

Markets are moving back toward matching supply and demand because of several factors, including no growth in ethanol demand and expanded global crop acreage.

Add another year of corn yields higher than 160 bushels per acre and soybean yields of 42 bushels per acre, and Roberts said growers can expect to see even lower prices - prices that are well below the cost of production on land that has been purchased or cash-rented in the past three to four years.

"Prices will only return to profitable levels if supply declines due to acreage leaving primary row crops or demand returns," he said. "This will likely create a significant financial strain in crop-growing areas."

In order to prepare for the impact of lower prices, farmers should build a working capital cushion of a year to 1.5 years of land charges above what they typically need to operate, Roberts said.

Other ways growers can prepare:

  • Avoiding machinery and building expenditures just to take advantage of section 179 is an easy way to build capital.
  • Refinancing any and all loans and mortgages into 10-year fixed rates.
  • Holding off buying land or entering into multi-year leases.
  • Carefully evaluating living expenses.

To read Roberts' entire policy brief for the conference series, visit: http://go.osu.edu/YhJ.



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