Keith Balderson, Extension Agent, Crop & Soil Sciences, Essex County
I have had several comments lately relative to the grain markets, such as, “the grain markets stink” and others that I can’t repeat in a newsletter. What’s going on? While there are several factors, much of the drop in the grain markets can be explained by supply and demand fundamentals. Simply put, when supply increases relative to demand, stocks increase and prices fall. And even though current prices are well below your cost of production, the market does not care.
Without getting into to many numbers, I will share a few figures that might put some perspective on the national corn situation. During the drought year of 2012 U. S. corn production was 10.78 billion bushels, and use was 11.11 billion and ending stocks were 821 million bushels, which is relatively low. As a result the average farm price of corn was $6.89 per bushel. Currently, U.S. corn production for the 2013-14 marketing year, which will end on August 31st, is projected to outpace use by 390 million bushels and estimated stocks are estimated to be 1.246 billion bushels – which is considered a comfortable level. The really bad news comes in the 2014-15 marketing year projections. The latest USDA report has projected ending stocks jumping to just over 1.8 billion bushels, which is considered burdensome. Some analysts think the stocks number could go higher given the current condition of the U. S. corn crop and possibility for even higher yields. As a result, the latest USDA average farm price estimate is $3.65 – 4.35 per bushel, which given the yield potential in many fields this year is well below the cost of production.
So, what do you do?
1.) Search for marketing opportunities. Futures prices as well as basis determine your price. Search for the best basis. Be sure to calculate your freight expenses, also as a better basis from a market outside your area might get eaten up by increased freight expenses. Evaluate storage opportunities.
2.) Stay abreast of the market situation. The market is affected by many global factors, and bear markets can turn bullish for unexpected and unforeseen events. Be prepared to act if you get an opportunity.
3.) Prepare for cash flows that will be significantly lower. Cash flows have been very good, the past few years, but that is about to change and possibly for an extended period of time. You might need to talk to creditors to restructure loans. If you have long-term obligations, such as higher land rent prices that are not sustainable in today’s economic climate, try to renegotiate the terms.
4.) As we move forward, evaluate your input costs for all crops. While times have been good, it has been easy to try products that might increase yields. Now is the time to evaluate each input and make sure that input is likely to increase net profits. Consult current research on all products.
We have been through times before when profit margins have been very slim or non-existent. I remember many years when a $50 net profit per acre was about the best you could expect. Hopefully, everyone has built up a cushion to help them weather the storm until better times return.