U.S. producers hanging onto crops | Market analysts say dropping prices will likely only get worse this year
LOUISVILLE, Ky. — U.S. farmers who are hanging onto some of last year’s crop in hopes of higher cash prices later this year should think again.
“I am suggesting that this might not be the right strategy and you may end up getting caught with lower priced corn this summer,” said Bob Utterback, an Indiana economist and columnist for Farm Journal in the United States.
Utterback said there is typically a psychology when commodity prices fall quickly that “you couldn’t possibly sell at this $4 price. You didn’t sell at $7 and it went to $8 only a year or so ago. This is still $7 or $8 corn. This wheat is really still worth $8. Well, it’s not, and it won’t be any again anytime soon.”
Farmers have done well over the past 40 years to hold some of their grain and market in the late spring and summer when there have typically been rallies in the markets.
However, the supply and demand fundamentals of the current market point to lower prices because of good supplies of corn, wheat and soybeans and low new crop prices off the combine.
Utterback told the recent National Farm Machinery Show in Louisville, Kentucky, that farmers should be moving their large remaining grain and oilseed stocks into the supply chain now and contracting production or buying futures positions, which will allow them to pencil in a profit for this year’s crop.
He said American growers should look at low to mid $4 corn, $11.20 to $11.60 per bushel soybeans and higher than $5 wheat as target prices.
Spring planting is still a few months away, even in the southern and midwestern United States.
Utterback said farmers are telling him they plan to stick close to their rotational plans for corn and soybeans this year, despite market signals that they should plant more soybeans and less corn.
He said that means another 93 million acres of corn will go in the ground. Assuming an average production year, it will likely spell lower corn prices for 2015.
Utterback predicts a near record harvest of soybeans worldwide, but the markets still support prices that are higher than what he feels might be warranted.
Soybean supplies in previous record production years have been fully absorbed by demand from China and developing nations.
However, Utterback sees some of that demand cooling, especially if growth rates in China level off at about seven percent.
“They really need eight or nine percent growth to keep growing the economy fast enough to support the exodus from the country to cities of their citizens,” he said.
That growth in the working classes is driving demand for soybean oil and eating up supply.
However, he thinks it won’t take much of a demand hiccup to generate a high carryout of soybeans, which would result in prices of $9 per bushel in North America, at or near the costs of production.
Utterback said new crop beans off the combine will bring about $9.50 and corn around $4, even with strong buying.
“There will be some wide basis out there at harvest,” he said.
Ken Smith, who farms in southern Indiana, said he is storing corn and soybeans on his 2,600 acre farm.
“I’m going home to truck grain. I was holding on, like most of my neighbours, hoping that if we held out long enough, the ethanol companies would begin to hurt and need the corn at a little higher price. I think I’ll clean out now, before everybody gets the message and starts to sell at once,” he said.
“I’m still covering my cash costs, but some of my rented ground is over $350 (per acre), and I am thinking that might not work out well, for me or the landowner.… Farm a little less or share some of the new reality for a few years until we see some better margins at the farmgate.”
Greg Smith, who farms 3,000 acres of row crops near Cummings, Kansas, and said he also plans to lower costs but will stick to his rotations and position his marketing so that he can pencil in a profit for 2014-15.
“It will be tighter, but we will try to grow more bushels and keep our costs down,” he said.
“I am ordering a new planter, but I hope that will help me seed faster and get the crop in when it can get the best start and yield more as a result. More bushels at the same cost is the answer for me, for now.”