Multiple sources predict prices for corn and soybeans to remain fairly flat. Some are saying corn may have more bullish potential. Could this be the ‘new normal?’ Read on to learn more.
Grain Prices Dependent on China
Mark Gold of Top Third Ag Marketing provides marketing advice for farmers in regular audio commentary segments on Ag Daily. In a clip just short of three minutes, Gold provides a somewhat obvious prediction. Grain prices are highly dependent on what happens with the Chinese trade war.
“I really think this is about the Chinese as much as anything else. We really need to see confirmation, rather than just these rumors. So we’ll see what happens.”
Gene Lucht of Ag Update seems to agree with Gold. The US has continued to be disappointed by the amount of soybeans that the Chinese are purchasing even after the announcement of the ‘trade truce.’ As a showing of good faith, China said they’d buy a significant amount of US agricultural products. This promise has yet to come to fruition. So far, they’ve bought about half of what we were expecting.
And the clock is ticking. If no trade agreement is made by March, then the tariffs from both sides will increase. Additionally, South American soybeans start to come in in February and March. Chinese buyers usually look over in that direction during those months. Because of these factors, sales need to be announced sooner rather than later.
It’s advisable for farmers to lock in prices or basis. Storing grain with the hope of getting a better price later down the road is risky, says Brian Hoops of Midwest Market Solutions, Inc., in Springfield, Missouri. All farmers can really do at this point is watch the weather in South America, hope for some sort of trade resolution with China, and use their marketing tools to reduce risk.
Bullish Year For Corn?
Tyne Morgan of AgWeb spoke with Chris Hurt, a Purdue University economist about grain prices. He’s predicting a bullish year for corn as compared to wheat and soybeans.
“In terms of corn, we really have made some progress in our usage being higher than our production numbers in the last several years, and we’ve reduced those inventories to what I call manageable levels.”
As the corn inventory drops, things become more favorable for corn producers. He’s not predicting a price explosion for corn, but he does think corn prices have a better chance to tick higher than soybeans do.
“We think we’re going to see some further erosion in inventory levels, and be getting corn prices higher, back to levels where at least we’re closer to getting cost and price into alignment.”
Soybeans, on the other hand are facing a very different carryout situation.
Several Predict Prices to Remain Flat
$4 Corn, $9 Soybeans
Rhiannon Branch of Brownfield Ag News spoke with Todd Hubbs with the University of Illinois about grain prices. Hubbs says that with all the trade uncertainty, growers should focus on break-even. Hubbs says $4 corn and $9 soybeans should be the numbers to calculate for this marketing year.
“If that’s the worst sale you make all marketing year, even into 2019, I’ll be happy for you out there. If you can’t make it work at those prices, you might have a tough time getting them much higher than that.
Have a plan in place. Think about what kind of prices you can make a profit at and if you get an opportunity – make the sale. If you are going to wait around for $11 beans and $5 corn, I have a feeling you’re going to be waiting a while.”
Hubbs also says that if there is a trade resolution with China, there is still potential for ‘fierce competition’ for soybean exports.
$3.91 Corn, $9.10 Soybeans
Mark Gold of Top Third Ag Marketing has numbers in that ballpark.
“The beans really need to close over $9.10 to be impressive, and corn over $3.91 to really get the funds to kick into gear here.”
$3.65 Corn, $8.40 Soybeans
Hubbs also wrote a piece for Illinois Farm Doc Daily that covered livestock and crop prospects for 2019. It was a summary of his presentation at the 2018 Illinois Farm Economics Summit. He writes that growth in China appears to be weakening, and crop prices continue to adjust to the new global trade environment. Unless there is a major production shortfall or a trade resolution, we should expect prices to remain near current levels.
Even though there is a reduction of ending stocks of corn, prices will remain flat.
Domestic corn demand continues to see growth in corn used for ethanol with support from record levels of ethanol exports. Growth in livestock production and low corn prices provide support for increased feed usage during the 2018-19 marketing year. Trade issues with China and the newly negotiated USMCA look to influence corn exports. Corn exports currently show a much stronger pace than last marketing year’s 2.44 billion bushels but substantial uncertainty remains. An expectation of higher planted acreage of corn is set for 2019. An estimate of 91.8 million acres with a trend yield near 174.2 bushels results in a 2019 crop near 14.7 billion bushels. A projected total use of 14.76 billion bushels would result in the 2019-20 marketing year ending stocks near 1.76 billion bushels, on par with 2018-19 projections. Prices look to average near $3.70 during the current year and near $3.65 during the 2019-20 marketing year if production and trade issues develop as expected.
Soybean prices have dropped in 2018 as a result of the Chinese trade war. Ending stocks continue to grow.
Current projections place 2018-19 ending stocks near 930 million bushels on much lower export totals. A projection of soybean exports sit near 1.91 billion bushels during this marketing year, down from last marketing year’s 2.13 billion bushels. Soybean crush looks to continue strength but cannot make up for the drastic reduction in exports. Planted acreage of soybeans appears set to decrease substantially in 2019. At planted acreage of 85.7 million acres with an estimated yield near 49.2 bushels, the 2019 crop comes in at 4.2 billion bushels. With total use projected at 4.11 billion bushels, a further increase in U.S. stocks appears likely by the end of the 2019-20 marketing year. A considerable amount of uncertainty remains due to trade issues with China and South American crop prospects in 2019. Prices look to average near $8.50 during the current marketing year and near $8.40 during the 2019-20 marketing year if world production develops as expected and no resolution to current trade issues develops over the near term.
This Could Be the ‘New Normal’
Nat Williams of Ag Update spoke with Scott Irwin and Darrel Good of the University of Illinois. They say that putting grain prices into a historical context might help predict where they’ll go in the future. They argue that we’ve had three price ‘eras’ in corn since 1947. Era 1 ran from 1947-1972, and corn prices averaged $1.72. Era 2 ran from 1973-2006, where corn prices averaged $2.43. Now, we’re in Era 3, and Irwin and Good predict history to repeat itself.
“The price for Era 2 increased 90 percent over the price in Era 1,” Irwin said. “We said the same thing between Era 2 and Era 3. We made a forecast of $4.60 per bushel for the new era that was developing in 2007-08.”
Each previous era had a boom and then a slowdown, and it’s happened for both corn and soybeans. A ‘demand shock’ drives up prices and production, and that’s followed by slower demand and falling prices. In Era 1 a boom was triggered after the Marshall Plan was implemented to feed Europe after World War II. Another factor was the Korean War. Era 2’s boom began with grain exports and oil prices. Era 3’s boom began with the growth of ethanol production. In each case, booms were followed by grain production outpacing demand. However, prices remained at a higher level than the period before even after they fell from the highs.
In today’s political climate, such aggressive government intervention is not on the horizon. The programs in place don’t replace so much of the lost earnings from falling prices.“The message is, there was massive government intervention that kept these prices from going even lower under the tremendous forces of productivity that were going on post-World War II.”“Era 3 could be much different because we’re going to be operating with a much lower safety net compared to those previous two eras,” Irwin said. “The loan rate (for corn) was just raised to $2.20. That’s not going to make a difference. Notice how different that is than what happened in the previous two eras. We would be jacking up the loan rate to $3.70 or $4 if we were following the same government response as we had in the previous two eras.”