Return to 2009-2010 corn prices, more flexibility predicted

Markets
Feb 21, 2014
by DTN
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—Optimism seen in long term ag outlook: USDA

USDA’s top economist said corn prices could return to 2009/2010 levels of about $3.90 as stocks rebuild following 2013’s record production and anticipation of another large crop in 2014/2015.

Chief Economist Joseph Glauber said that’s a slightly higher price than USDA’s baseline projection last week because it incorporates new farm bill programs.

“We had assumed that under the continuation of the old law that more land would be planted to corn because of the ACRE program,” Glauber said. “Now with the new programs based on base acres, we think there will be more flexibility. They will look at the soybean-to-corn price ratio and will plant a little less corn than normal.”

Soybean prices are expected to decline to $9.65 cents as U.S. and South American production swells. The average wheat price is expected to decline to $5.30.

Glauber also updated acreage figures from the baseline estimates. Corn acreage was adjusted down from baseline’s 93.5 million acres (ma) to 92 ma, while soybean acreage was adjusted upward to 79.5 ma from last week’s 78 ma. Wheat acres came in at 55.5 ma, down from last week’s 57 ma.

Glauber’s annual overview of the ag economy kicks off USDA’s Agricultural Outlook Forum. USDA will release more detailed outlook forecasts for grains, oilseeds, cotton and livestock on Friday morning at 6 a.m., CST.

These reports are based on economic factors, assumptions of normal weather and trend yields, unlike the March Prospective Plantings report, which is based on farmer surveys.

DTN Analyst Todd Hult man said 92 million acres of corn “translates to roughly 14 billion bushels of corn production and still adds to supplies in 2014, weather permitting. 79.5 million acres of soybeans translates to roughly 3.55 bb of production and keeps bullish hopes alive for soybeans as it only adds about 100 million bushels to ending supplies if weather cooperates.”

Hultman added that last year’s total combined corn, soybean and wheat acres came to 235 million acres (if prevented planting acres are included). This year’s estimate tallies 227 million acres. “The bigger question is where are all the acres?” Glauber said they expect overall acreage to be down marginally, about 1.7 million acres, for the eight major row crops. USDA anticipates a 10.5 percent increase in cotton acreage (from 10.4 ma to 11.5 ma) and a 16.5 percent increase in rice acreage (2.5 ma to 2.9 ma).

Glauber said record production is happening against a backdrop of rebuilding stocks.

“Despite this big run-up in production in response to high prices and because of the record global use that we’ve been seeing, these stocks levels just aren’t increasing all that much,” Glauber said. “Prices and other things will remain sensitive to production shortfalls, if there are problems this year, we could see spikes in prices.”

Glauber said global corn use has grown an average of 3.8 percent each year over the past decade while soybean use has grown at 4.4 percent. USDA sees global trade increasing 15 percent for wheat, more than 30 percent for corn and 40 percent for soybeans over the next decade.

USDA also sees increasing corn use for ethanol, Glauber said, but the rate of growth depends on how well higher blends of ethanol penetrate the market and how much gets exported.

“Obviously a lot of that will rely on the price of petroleum and the underlying feedstock price of corn. And I would contend that those two can’t get too far out of balance before you see more corn being converted to ethanol and competing in that market,” he said.

The livestock sector is working on expansion, albeit dampened somewhat by porcine epidemic diarrhea (PED) virus and slow pasture recovery. Eventual expansion will increase the need for feed.

Overall, Glauber said the last seven years of prosperity will help ease the transition to lower prices, but he’s also optimistic about the long-term outlook.

“We’re back to levels we haven’t seen since 2009/2010. And I think that a lot of people will look at that and say, ‘boy, that’s a pessimistic outlook,’” Glauber said. “I’m not disputing the fact that lower prices— especially with cash rents that have been negotiated on the basis of pretty high prices—that this is certainly going to be a change and a challenge for the sector as we move forward. However, I still think that long term, we have very positive aspects to what’s going on in the agricultural sector.” — Katie Micik, DTN

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