Thursday, June 13, 2024

Pray for Rain? Think Again

Favorable weather this growing season could shave $2 per bushel off the price of corn as bins, silos, and ag bags are filled to the max with a record-large corn crop. That’s the conclusion of a recent report by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri.

pray for rain(1)Pat Westhoff, FAPRI director, says the analysis shows that new-crop corn prices will average near $5 per bushel, down from $7 for the crop harvested last fall. FAPRI’s projected corn price, however, assumes corn is planted on 96.9 million acres, which would be the second highest to 2012’s record, and a return to trend yields of 162 bushels per acre.

Last year, the average yield was only 123 bushels due to large areas of drought, and 2012 was the third year in a row that the average corn yield fell below trend, Westhoff notes. A record corn crop would allow stocks to build, sending prices sharply lower.

The FAPRI report, U.S. Baseline Briefing Book Projections for Agricultural and Biofuel Markets, was released earlier this month.

FAPRI also conducted a stochastic analysis in which computers come up with 500 potential outcomes that showed annual corn prices were below $3.50 per bushel 10 percent of the time and above $6 per bushel 10 percent of the time over the 10-year forecast period beginning in 2013. But Westhoff notes that actual volatility could be even greater.

Beginning in 2014 and continuing through 2022, average grain and oilseed prices are projected to remain well below the record levels of 2012-13, the report notes. However, they are also expected to be well above the average prices prior to 2007. Corn prices, for instance, during the forecast period average just under $5 per bushel.

Ethanol production in 2013-14 is projected to rebound significantly assuming that the biofuel mandates are enforced. “The value of the certificates used to demonstrate mandate compliance must rise substantially to cover the discount needed to sell fuels containing more than 10 percent ethanol,” says the report. Ethanol production for the 2013-14 crop year grows a sharp 16 percent to 14.4 billion gallons. By the end of the forecast period, however, ethanol production is expected to hit only 15.7 billion gallons, slightly more than a 1 percent annual growth rate.

Farm income in 2013 is expected to continue strong for the third back-to-back year. “Net farm income, a measure that includes changes in the values of inventories, reaches a record $131 billion in 2013, while net cash income reached its record level in 2012. Both net income measures retreat slightly in 2014 in response to lower crop prices and receipts,” the report notes.


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