The impending sharp drop in U.S. corn prices will have repercussions throughout North American grain markets and produce a more aggressive U.S. trade focus, says an export specialist.
It will also present U.S. corn and soybean producers who have enjoyed years of record prices with a reality jolt, now that Washington is unlikely to find the cash to fill the income gap, ProExporter Network president Marty Ruikka of Michigan told an Ottawa meeting of the U.S. Grains Council board in Ottawa July 29.
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He projects that corn prices will drop from the 2012-13 level of $6.90 US per bushel to $5 or less and remain between $5 and $4 through the decade, a 30 to 40 percent drop.
“As a result, I think we are returning to an export market focus,” he said. “The only choice we see is with further exports.”
At the core of the projected price tumble, already evident in markets, are a bigger crop and a flattening of U.S. biofuel industry demand for feedstock, said Ruikka.
Strong biofuel demand in recent years has taken a large chunk of the U.S. grain surplus generated by yield increases. Along with production declines because of drought, it has contributed to recent years of strong prices.
“What’s happening now is that while the ethanol industry demand will not decline, it has plateaued and so there will be a big drop in that strong demand and growing surpluses,” he said.
“We have to find a home for that surplus.”
He predicted that the looming sharp price decline could decrease corn sector gross income by more than $13 billion over the next three years. “This is a really, really big deal for the corn producer.”
Meanwhile, the U.S. Department of Agriculture’s practice of doling out billions of dollars in farm supports when markets decline is “a thing of the past,” said Ruikka. “There is no more discretionary spending in Washington.”
A sharply divided Congress has been unable to even agree on a new farm bill to set rules for the industry over the next five years.
In an interview, Ruikka said the return to prices more in line with historic averages will be a challenge for a sector that has become accustomed to high cash flow.
“The first thing is it is going to be very difficult for them to continue to pay the high prices for land and to support high rent prices,” he said. That means sharply reduced asset values and “a tightening of belts within operations.”
He said recent entrants to the sector will face the biggest shock.
“I think for the young farmer, in the past five to seven years he’s been able to make mistakes and get away with it,” he said. “In the future he’ll have to operate mistake-free or pay the consequences.”
At the Canadian Federation of Agriculture summer board meeting in Montreal July 31, several provincial farm leaders said Canadian prices will inevitably follow the U.S. commodity price decline, and the projected increased export competition will have a depressing effect on prices for Canadian grain sales abroad.
