Crop Prospects Remain Positive with Large Uncertainties

Income forecast for cropping agriculture remain strong for 2013. Current futures market prices for 2013 crops are favorable if Indiana’s yields can return closer to normal. The official winter weather forecasts from NOAA favors continued moisture improvements in the Eastern Corn Belt with continued dryness concerns for the Western Corn Belt and Great Plains states where a large region of drought is expected to persist. At this early point, this forecast suggests much improved yields in the Eastern Corn Belt, but still strong prices because of potential lower yields further west. Thus, the extent of a continuing 2013 drought and its impact on national yields and prices will likely be one of the primary unfolding stories in determining the final outcomes for Indiana crop producers. Accurately predicting weather is difficult and increases the uncertainty of financial outcomes for farm families.

Old crop corn usage has had to be sharply curtailed due to a lack of supply. The ethanol industry has cut usage by 9%. Ethanol plant margins are negative and will likely continue that way for the remainder of old crop marketing. Further plant cutbacks can be expected with Indiana plants reducing corn use by 20% or more. Corn export sales have been a drag on corn prices as well. Export commitments are down 45% from last year at this time. Finally the livestock industry has probably cut corn usage about 10% as they have imported about 100 million bushels of added feed supplies and are also using at least 200 million bushels of other feed ingredients such as wheat and barley in rations. In addition, they have cut herds and flocks and sharply reduced placements of cattle in feedlots.

Cash corn prices are expected to remain in a range of $7.40 to $8.25 this winter. Corn is in very short supply, but high prices have forced most end users into large financial losses. This means there is a limit to how high corn prices can go, unless another production setback becomes evident in South America or the U.S. next summer.

Corn basis will remain very strong through mid-summer and end users are concerned about controlling sufficient inventory to run plants and livestock facilities. What happens to prices in the spring and summer of 2013 will be highly dependent on growing season weather, but old crop prices will remain high through at least mid-summer. Harvest prices of corn are currently near $6 a bushel, but would be expected to move lower if a decent crop becomes assured late next summer. Normal U.S. yields might result in harvest prices dropping to $5.25 or lower. But new crop prices are not likely to drop that low until the crop is assured next summer.

Old crop soybeans are expected to trade in a range of $14 to $16 a bushel this winter before movement to lower prices beginning in the early spring with the arrival of South American production. China, the big world buyer, has remained committed to buying, even at record high prices last summer. The export sales pace is currently 35% ahead of last year. A huge South America crop is expected which will be nearly two times larger than the U.S. crop. World buyers are expected to shift their purchases quickly to South American origins. Late next summer soybean prices are expected to drop sharply making a quick transition to new crop prices. Bids for new crop harvest beans are near $13 a bushel, but would probably drop to below
$12 a bushel if national yields are near normal.

There remains considerable upside potential for new crop corn and soybean prices if the current drought continues into the 2013 growing season. The Great Plains drought will first impact hard red winter wheat yields in 2013 and then corn and soybeans if it persists into the spring and summer. All this uncertainty means there can be wide outcomes for grain prices in 2013. That wide variability means producers need to manage these wide possibilities. The three tools producers have to manage those risks are: crop insurance; probably the new farm program; and marketing decisions.