Prices high but margins tight

for corn and soybean growers

World-wide demand for corn and soybeans continues to be strong, supplies are large but not quite keeping pace with the increase in demand and margins for growers are likely to be tighter in 2012 and perhaps beyond.

University of Wisconsin Extension Service grain marketing outreach specialist David Moll shared this information at the first of the three regional corn and soybean conferences for 2012.

At this point, production and price outlooks for 2012 are little more than estimates and guesses but the early indications are that corn acres in the United States could top 93 million and soybeans will be at about 77 million - some of which acres will have to be taken from other crops, Moll noted.

Over the past five years, he observed, either the U.S. Department of Agriculture or the private market has been wrong in anticipating crop yields and crops.

What is known is that a new and higher price plateau has apparently been established for corn over the past five years.

In addition, new uses have been established for a total of 30 million acres of corn and soybeans during the past 10 years, thanks to the rise in ethanol production (adjusted for the dried distillers grains livestock feed byproduct)

Added to that are exports to China, and that the corn stocks to use carryover ratio has been a record low for the latest three-year period, Moll pointed out.

Among the variables in the current market arena are the strength or weakness of the U.S. dollar (weak is good for exports) and China's import demand for soybeans and corn, Moll indicated.

He said ethanol production is nearing its federally mandated 15 billions per year under the renewable fuels standard. The termination of the 45-cent per gallon blender's credit on ethanol at the end of 2011 should prove to be a negligible factor.

During the back-to-back high yield and high price years for corn and soybeans, Wisconsin growers have been in a good position because they have enjoyed both, while farmers in some other areas did not fare as well because of weather conditions that affected yields, Moll noted.

This came after a period from the late 1990s to 2006 when corn production costs were higher than corn prices for many growers, he indicated.

The price plateau for corn hovered at just under $3 per bushel on average from 1971 through 2006 before rising to a new plateau of about $4.50 per bushel since 2007, Moll said.

He warned, however, that corn prices in the $4s per bushel are still a possibility should crop acres and yields both be high in 2012 and if demand would slacken for any of several reasons.



Hedgers, investment funds in the grain market

Regarding the role of hedgers and investment funds in the grain markets, Moll said they prefer to take a long position and are looking to protect and adjust their overall portfolios. He pointed out that their goals are not likely to coincide with those of the agricultural sector.

As grain market movers for 2012, Moll identified the supply spectrum variables such as delays in planting and drought along with what the acreage and yields prove to be.

On the demand side, he mentioned the continuing European debt crisis because of the uncertainty it creates, the state of the economy in China, which accounts for about 60 percent of the export market for U.S. soybeans, the good demand for soybean meal in a strong hog market and the development of the bio-diesel fuel market.

Moll urged growers to consider pricing target increments of 20 to 40 cents per bushel, being aggressive in locking in corn prices if they top $7 per bushel and identifying how much downside risk they can afford to want to take as corn and soybean production costs continue to increase.