"It's going to be a struggle going ahead" if one's interest is higher in selling corn and soybeans because the production in 2013 outstripped the demand for the first time in five or six years.
That was the message from grain marketing specialist Brian Rydlund of CHS Hedging, which is based in Minnesota, in a presentation at the 2014 annual meeting and educational program of the Outagamie County Forage Council.
Rydlund's outlook on prices for 2014 indicate a top of $4.50-$4.75 per bushel cash for corn — most likely not $5 and with the possibility of $1 per bushel less than current futures prices. For soybeans, he sees the possibility of a downward price move of as much as $3 per bushel from current numbers.
The challenge for growers who expect to sell those crops is to find a way to limit input costs for growing corn to about $4.50 per bushel and to keep those costs to the low double figures per bushel for soybeans, Rydlund remarked. He noted that good production of those crops both in the northern and southern hemisphere is a factor in world supply and pricing.
Rydlund's analysis is based on the expectation that corn growers will plant about 92 million acres in 2014 and harvest close to 160 bushels per acre on average. Subtracting the acres going into corn silage and for seed, that would provide a second consecutive year of a corn crop of close to 14 billion bushels, which is significantly more than the market demand, he observed.
The ethanol boom, which fueled the corn price rise in recent years, has reached a plateau of using about 5 billion bushels of corn per year, Rydlund pointed out.
Although corn exports by the United States are likely to approximately double from the multi-year low of 734 million bushels from the drought-affected 2012 crop, this will not come close to taking care of a bountiful supply, he indicated. Brazil, Ukraine, and countries in eastern Europe captured a larger share of the export market at least temporarily with their lower prices, he pointed out.
If there's any benefit to the nearly $3 per bushel drop in the corn price in the United States from its peak in 2012, it's that competing countries will be discouraged from increasing or even maintaining their production, Rydlund commented. He said Brazil has taken the hint by cutting its corn acres by 10 percent and that Ukraine could do the same. "That is how the market works," he remarked.
In Rydlund's opinion, corn growers in the United States did "a poor job" on selling their old crop (2012) corn and still have a lot of their 2013 crop to sell. He called what he described as a "do nothing" stance as the worst possible choice in marketing and observed that growers were bailed out in recent years because they had second and third chances to sell at attractive prices.
Those days are gone but "the bad habits" might not be, Rydlund stated. He urges growers who intend to sell corn to "work for a price now" either by hedging or by picking up some value in the market carry.
Good marketing strategy requires a combination of "patience and wisdom," Rydlund said. He views them as the "two greatest qualities in life."
"It's been easier than it is now," Rydlund commented. "I hope I'm wrong but I don't expect you'll see $5 corn this year."
Based on current numbers, which include a price rise for urea, corn growers should not expect to have a profit margin of more than $50 per acre on average in 2014, down from $200-$250 in many cases in the past two or three years, Rydlund warned. For that reason, growers need to sell into price rallies and be aware of the local basis value, he advised.
The severity of the current winter and the prospect of another late spring could provide a boost for corn prices, Rydlund indicated. He added, however, that the soil moisture outlook continues to improve in much of the country's major corn growing region.
Buyers and end-users gauged the market quite a bit better during the three-year run of record high prices for corn, Rydlund observed. He explained that the pipeline was nearly empty as they waited for lower prices that are the result of the record US corn crop in 2013.
A long-term undertow to corn prices is the predicted Aug. 31 carryover of 1.631 billion bushels, Rydlund noted. A similar size crop in 2014 would push that total to well over 2 billion bushels, he observed.
The final U.S. Department of Agriculture report on the 2013 corn crop added 100,000 planted acres and 500,000 harvested acres to the previous estimates but lowered the average per acre yield by 1.6 bushels to 158.8 for the year. Predicted uses were up by 100 million bushels for feed and residuals and by 50 million bushels for ethanol production, resulting in a net reduction of 161 million bushels for the Aug. 31 ending stocks.
Beyond the basic laws of supply and demand, the market reacts to the differences in the monthly reports between the expected numbers and the actual ones, Rydlund pointed out. "Prices follow those differences."
For the last crop year, corn production was 355.3 million metric tons (mmt) in the United States, 211 mmt in China, 70 mmt in Brazil, and 65 mmt in the European Union, Rydlund noted. In terms of projected carryout, the numbers are 67.456 mmt for China, 47.94 mmt for the U.S., and 11.82 mmt for Brazil.
Rydlund observed that China appears to taking a two-faced approach on corn by acquiring genetically-modified organism (GMO) seed for its own production, including at least one illegal effort to do so, while also rejecting shipments of corn and dried distillers grain from the United States on grounds that it has GMO traits.
The final report on the 2013 US soybean crop added 200,000 harvested acres, tacked on .3 bushel per acre to the average yield to put it at 43.3 bushels, and raised the total yield by 31 million bushels from the previous estimate, Rydlund noted. Estimated exports were increased by 20 million bushels and crushing use by 10 million bushels, leaving the projected carryout at 150 million bushels.
Rydlund was impressed by the record volume of US soybean exports during the past six months, noting that some of the movement had to overcome physical barriers such as frozen waterways. At the same time, he added, a record high of soybean imports is likely due to the attractive prices on supplies from Paraguay and Brazil that are being fed by livestock and poultry growers in the Southeast.
Brazil has overhauled the United States on soybean production and South America accounted for 142.5 mmt of the world's crop of 283.54 mmt during the past crop year, Rydlund reported. Soybean production continues to decline in China, meaning that the world's most populous country is stepping up its soybean imports, he noted.
Crop analysts at CHS are predicting an 83-million acre soybean crop in the United States this year but 78 million acres ought to be sufficient, Rydlund remarked. He said a 45-bushel per acre average yield would lead to a too-high carryout of 383 million bushels.
Old crop sales (2012) sales of soybeans were aggressive but that has not been the case so far for the 2013 crop, Rydlund continued. Soybeans could have a greater price downside than corn because of uncertainties about China on its economy, demand, stance on GMOs, purchases from the again logistically-challenged South America, and any renewal fuel decisions by the U.S. Environmental Protection Agency, he explained.
The world's wheat production set a record of 711 mmt during the past year and could set another record for the current crop year, setting the stage for a downward price trend, Rydlund observed. He noted that wheat can be grown successfully almost everywhere and that at least 20 countries are doing so.
On a related point, Rydlund has learned from colleagues that land rental rents and land sales are beginning to reflect the downward turn in prices for the major grain crops.