With this year’s drought came crop condition indexes rated even lower than they were in the drought of 1988.
Doug Cropp, senior vice president of the grain division for Landmark Services Cooperative told several hundred farmers gathered for a crop management field seminar recently that the marketplace is concerned with the overall carryout-to-use ratio and that all-important crop condition index.
Along with others working in the market, he predicted that harvested acres will decline, when all is said and done, and many more acres of corn will go into silage than were planned at the beginning of the season.
That, of course, will affect the number of bushels of corn that are available to be used as grain.
The effects of the drought have dropped the numbers of acres of corn for export dramatically. "We’ve priced our corn out of the world market. We need to ration a lot of demand and high prices will do that."
The whole "food versus fuel" issue has been debated off and on for the last several years, but the drought has intensified those issues, he noted; the drought has seriously changed the economics of ethanol production.
Corn going into ethanol production has been dropping all year and the marketplace is averaging 8-10 percent below what was used for energy production at the same time last year. "Corn prices are too high," Cropp said.
At the same time, he noted that ethanol makes up nine percent of the nation’s gasoline supply and is also an oxygenator that helps keep the air clean. "Ethanol will still need to be used."
According to the U.S. Department of Agriculture, feed usage of corn is down dramatically, he said. "They are saying that it’s the lowest since 1950 and that’s hard to believe. Many people are questioning their figures."
Nonetheless, Cropp said that raises the question of how much the industry needs to ration feed in the current drought aftermath.
Last year, U.S. farmers produced a smaller crop than was expected and ending stocks this year after the drought, are predicted to be as low as they were at the end of the 1995-96 growing season, Cropp said.
According to predictions, world ending stocks this year will be the lowest since 2000, he told the farmers who gathered at the cooperative’s Stoughton Answer Plot for various seminars on grain and agronomy.
The new prices that farmers and marketers have been dealing with for the last three years come with their own set of risks and people are still adjusting to that.
Cropp said the wheat crop turned out better than many farmers or the market thought it would be and he said he hears more and more stories about how farmers plan to increase their wheat production next year.
Ethanol production from wheat also becomes a real possibility in this kind of market scenario, he added. "We still need a lot of wheat."
The world ending stocks are the lowest since 2007-08. The market has concern over Australia’s wheat crop as well as the crop in Russia.
It truly is a global market and production in various "break baskets" makes a lot of difference in the price of commodities.
The market has responded with higher prices to the ever-lower predictions of soybean yields. National yields averaged 40 bushels per acre last year and the trend line has been 44-45 bushels, Cropp said.
There is also a smaller crop in South America, the other powerhouse of soybean production, so the market is concerned. Record levels have been booked for this time of year, he said.
"Demand hasn’t dropped."
There are record new crop export commitments to buy, he said, with a lot of that being booked by China.
Soybean stocks are also tight and the market won’t have as many beans because of the drought. "We need to have that demand reduced. "We’ve had pretty good prices on soybeans for the last couple of years."
A price of $7.25-$8.50 per bushel for corn is probably where we’re going to be, said Cropp. "To me anything above $8 is a sale. Less than $7 and I’d hold onto it."
In the soybean arena he expects to see prices ranging from $15-$18 per bushel and he would pull the trigger at $17.
"If I can get $17 off the combine I’m not so sure I need to get $20."
He encouraged growers to have a marketing plan and to lock in a 2013 profit and buy inputs now.
In the geographic region served by Landmark, Cropp said he hadn’t seen any major problems with aflatoxin, a mold toxin that can be particularly bad in drought situations. Test kits are available to determine if a corn crop is infected with this toxin.
Cropp said the effects of the drought and reduced yields have meant that some farmers won’t be able to deliver corn or soybeans that they have contracted with Landmark.
The co-op offers the option of buying out those contracts or rolling them over into next year. "We hope to have better yields than we expected but it’s an option to roll them into the next marketing year."
If farmers don’t have enough yield to fill their contracts, he said, it’s "not the end of the world. We have solutions." Smaller contracts may be bought out, but there will be a fee to get out of the contract.
Those fees could run 25 cents per bushel for corn and 40 cents for beans and wheat, he said, because there is risk to the co-op for buying out that contract.
Earlier in the summer it would have cost even more. "Back in July we didn’t know if 40 cents was going to cover it."
If a neighbor has corn it would be a good option to pay him 10 cents over the market price and avoid the 25-cent penalty that’s involved with buying out an existing contract, Cropp said.
"We’re willing to work with it as best we can. We’re not like an ethanol plant – they need the corn."