Leaner times for ag ahead
CLEAR LAKE – Weathering a storm is part of farming. Speaking at the Corn and Soybean Clinic held at the Methodist Church in Clear Lake on Dec. 13, economist Chad Hart could have been a weather forecaster warning farmers of an approaching storm in prices.
“2014 worries me, and 2015 terrifies me,” said Hart.
Hart’s concern about the next two years is because he sees $4 corn for 2014 and the possibility of $3 for 2015.
With crop prices falling from the highs of recent years, Hart said the market has stabilized.
“Demand has responded,” said Hart.
The most recent U.S. Department of Agriculture report showed increased feed demand with usage for 2013 at 5.3 billion bushels – the first time since 2009 feed usage has exceeded 5 billion bushels.
The corn grind for ethanol is back to pre-$7 corn levels, according to Hart.
“Demand is not growing fast enough,” said Hart, citing increasing supplies of crops around the world.
Globally, corn production is up 12 percent which will increase competition for sales in the U.S. corn market.
Hart said Ukraine’s corn production is up 43 percent. Ukraine’s domestic use is small so it will be an exporter of corn to Europe and Africa where it has transportation advantage.
In the U.S., 2013 corn production set record yields in 18 states, and Hart believes those same states will plant those acres again to corn.
Acreage expansion of corn and soybeans was mainly in the southeastern states where the market for cotton is down.
Land once used for grazing livestock was put into crops production, said the Missouri native.
“I know how easy it is to take out a fence and how hard it is to put it back in,” he said.
Since 2006, Hart said, “We’ve had a great five-year run. The run is done. Corn is looking at the soybean market for guidance.”
For the 2013 corn crop, Hart said the large bins erected by farmers have put them into the storage business.
Hart sees potential storage problems with corn crop because of inconsistent quality and said it was a “time bomb out there.”
He said basis levels will return to normal and have already started in northwest Iowa working their way east to the Mississippi River.
“Take advantage of any old crop price you see,” said Hart.
Crop insurance will be important in 2014 with prices that are above production costs.
Soybeans prices, according to Hart, “still have a margin here.”
Soybean prices will be good for the short term until the South American crop is harvested, which he said, is “going to be a dandy.”
USDA soybean exports to China are already at their predicted estimate and will flatten out as the South American crop becomes available.
Hart said corn exports left when corn reached $7 and returned when it went to $4.
The best customers for corn exports are Mexico at 27 percent, China at 22 percent and Japan at 17 percent.
When China rejected recent loads of corn, those loads went to Japan with no problems.
Hart believes it was a “pricing play” with China rejecting $5 corn so it could buy $4 corn.
He said he is a short term bull on crops and a long term bull on livestock.
“Cattle are not as strong as hogs,” said Hart, who sees production costs at $40 a head for hogs and $150 a head for cattle.
Hart said he was not worried about the recent Environmental Protection Agency decision lowering the ethanol percentage in the Renewable Fuel Standard because he is not sure the EPA has the authority to do that, something even the EPA is not sure about.
While fuel usage in the U.S. is flat, other parts of the world are increasing consumption.
Hart said that ethanol has even been exported to the United Arab Emirates, showing it is cost competitive.
In 2013, U.S. ethanol was exported to Brazil when it had a temporary shortage.
While Hart is not certain about the next two years, he said he is a “short-term bear for the next two to four years and is a long-term bull for U.S. ag.”
Incomes and demand is growing in China and India, with Africa the next customer in the future.
The U.S. has the greatest amount of productive soil in the world.
“The increase in crop production has to come from us,” said Hart.
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