U.S corn farmers produced a record corn crop in 2013, right at 14 billion bushels, with the second highest ever national average yield of 160.4 bushels per acre (second only to 2009’s 164.7). That production number was up 30 percent compared to the drought shortened crop of 2012.
It is typical for corn use to rebound when more normal production numbers follow a short crop year, but not usually at the same pace as production. That was the case in 2013 when the 30 percent production increase was met with a 17 percent increase in corn use. With supplies increasing at a faster rate than use, U.S. corn ending stocks more than doubled from the 824 million bushels carried over from the 2012/2013 marketing year to an estimated 1.887 billion bushels in 2013/2014. The combination of these factors resulted in a drop in the national season average farm price of corn from $6.89 per bushel in 2012/2013 to an estimated $4.50 per bushel for 2013/2014.
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The season average farm price for corn in the biofuel era (since 2007) is about $5.00 per bushel. Many preliminary corn budgets project a breakeven price of $4.50 per bushel. The impact of relatively low corn prices drives the feed grain outlook for 2014.
With lower prices, expect fewer acres. Tight or negative projected profit margins will cause producers to look to alternative crops for better margins or reduced input costs to lessen exposure to operating losses. One market signal impacting the planting decision is the futures price ratio of November soybeans to December corn. A soybean to corn price ratio of 2.5 is needed in a typical Corn Belt budget to equate the returns of soybeans to corn. Early estimates of corn planted acres in 2014 are in the range of 91.5 to 93 million acres, down from 97.2 million in 2012 and 95.3 million in 2013.
Look for corn use to increase. Livestock producers are experiencing record high meat prices and the lowest feed costs in years. This is a recipe for herd expansion and increased feed use. World grain use continues to grow creating opportunities for increased exports. U.S. ethanol production is running ahead of last year and average ethanol manufacturing profits are the highest in years. Proposed revisions to the renewable fuels standard will have more impact on advanced and cellulosic ethanol production and likely decrease incentives to produce flex-fuel vehicles or invest in high blend fuel facilities (E-85). But revisions proposed at this time are expected to hold corn-based ethanol levels constant.
An easing of short term corn supply concerns has put downward pressure on prices. Increasing corn use will continue to provide an environment of price volatility. Important in this tight margin environment is diligence in monitoring market conditions in order to capture profitable pricing opportunities.
Mark Welch, Texas A&M AgriLife Extension Service economist
Kim Anderson, Oklahoma State university, Extension ecnomist