The USDA's April 9 World Agricultural Supply and Demand Estimates continued a series of recent reports that have offered corn and soybean producers a more optimistic grain-price outlook than what was expected for most of the winter, Purdue Extension agricultural economist Chris Hurt says.
Cash corn prices fell to near $4 a bushel during the fall and early winter months - a price well below the estimated $5 per bushel it cost farmers to produce the crop. Grain producers were afraid of just how low prices would fall and how long they would persist. Sustained low prices not only eat away at grower profits, but they also can lead to decreases in farmland values and cash rents.
"That fear was very real," Hurt said. "But recently, both old- and new-crop corn futures have pierced the $5 mark on the heels of USDA reports showing better old-crop corn usage and reduced acreage for 2014 plantings"
Low corn prices drove winter corn use higher than originally anticipated, causing the USDA to increase export estimates by 125 million bushels in the April 9 WASDE report.
Since November, USDA has increased total corn usage by 500 million bushels, which includes increased exports, livestock feeding and ethanol use.
"When you see usage go up across the board as we have this year, it's an indication that corn prices near $4 were just too low," Hurt said. "Being 'too low' means that almost all end users had very high margins and wanted to own more corn. It also means that prices needed to rise to better reflect strong usage."
Back in March, farmers reported to the USDA that they would reduce national corn acreage by 3.7 million this spring. Reduced acreage coupled with strong usage means that with normal yields in 2014, corn production will be relatively in balance with usage. Hurt said if that happens, prices could range between $4.40 and $4.80 per bushel for the 2014 marketing year.
Overall, Hurt said, this is good news for growers who, over the winter, wondered how far below $4 corn prices could plummet.
"At this point, the prospects are more positive that U.S. corn prices can average somewhat above $4.50 per bushel for both the 2013 and 2014 crops," he said. "The closer those national corn prices come to $5, the less downward adjustment is needed in land values and cash rents."
The soybean outlook also has improved. According to Hurt, the United States has already sold more bushels of soybeans for export than it can deliver. As a result, soybean futures have touched $15 per bushel.
Historically, when soybeans have reached even the $14 mark in similar situations, prices have continued to climb to $16 or more per bushel.
"There are multiple ways to work out the tight old-crop supplies, including encouraging some buyers to cancel contract purchases, importing soybeans from South America or having U.S. soybean prices go so high that they discourage some domestic use," Hurt said.
As a start, USDA analysts increased old-crop soybean imports by 30 million bushels in the April 9 WASDE report. But even with more imports, the U.S. has still committed to deliver to foreign buyers almost 60 million bushels more than what is available in old-crop supplies.
"The oversold dilemma continues and further adjustments likely will be needed this spring and summer," Hurt said. "It isn't clear if those adjustments will require even higher soybean prices or whether contract cancelations will resolve the issue."
Short supplies of old-crop soybeans led farmers to tell the USDA in March that they will shift 5 million acres out of corn and sorghum production into soybeans. If that happens, Hurt said, average soybean prices for the 2014 marketing year would drop back to the $11 to $11.50 per bushel range.
The total cost of production for a bushel of soybeans is closer to $12, so prices at this level could still mean a drop in land values and cash rents, Hurt said.
"However, just like for corn, these soybean prices are more optimistic than just a few months ago," he said.