Farm Talk

February 21, 2013

Ag profitability conference addresses crop concerns

by Mark Parker

Parsons, Kansas — Corn and soybean producers face wide-ranging harvest price possibilities for the crops they plant this spring.

Price influence factors are many but none will be greater than weather conditions from the Corn Belt all the way to Brazil.

Speaking to farmers at the recent Ag Profitability Conferences in Iola, El Dorado and across the state, Kansas State University Ag Economist Troy Dumler outlined some of the economic conditions growers face.

Corn prices for the year are, to a very large degree, dependent on yield prospects.

For the past three years, U.S. corn yields have been below USDA trend yields and Dumler suggested growers should consider low, trend and high yield scenarios.

In the coming year, low U.S. average yields (135 bu./acre) would likely support relatively high prices in the $6 to $7 per bushel range.

A trend yield of approximately 157 bushels per acre would result in a record U.S. crop and prices could drop into the $4.25 to $5.20 range.

A high yield scenario (164 bu./acre) would likely pressure corn prices down to $4-$5 per bushel in the absence of unforeseen market influences.

“Going into this year, there are a huge range of potential outcomes we could see on the corn side,” Dumler acknowledged, “so that makes some of our decisions a little more difficult going forward.

“Right now we are seeing a tight basis. The market is rationing the existing 2012 crop and that’s likely to continue into the spring and summer until we get an indication of how the new crop is doing.

“Basically, if we get normal or trend yields this year, we’re going to see significant reduction in (corn) price but if we continue to have some problems that’s going to keep prices high but it may also damage some of the demand base as well.”

For wheat, the range is less dramatic with markets supported by poor growing  conditions across the Great Plains as well as in other wheat producing areas around the globe.

That means there will be continued support for higher wheat prices with less impact from good yields, Dumler said.

Low yields (38.6 bu./acre) would probably put per bushel prices at $8.75-$9.25. A trend yield of 45.2 would likely put prices at $8-$8.50 and higher-than-trend yields (46.3 bu./acre) would yield a price range of $7.80-$8.30.

“Global uncertainty supports higher wheat prices so we don’t expect as large a drop-off (in prices) as corn, as (wheat) yields improve,” Dumler explained, adding that the corn market could also impact wheat prices with corn production problems supporting wheat prices.

The soybean market will be heavily influenced by what happens in South America over the winter and spring as a good crop will put downward pressure on prices despite record low ending stocks last year.

Dumler’s soybean projections include a low-yield scenario price range of $14-$15.50 per bushel, a trend yield range of $10.50-$11.50 and a high-yield price spread of $10.25-$11.25.

“South American crop size will drive U.S. exports and affect U.S. acres planted to soybeans,” he said, adding that currently crop prospects there look good.

While the opportunity for relatively good returns still looks positive, it will depend on yields both on area farms and yields in other areas.

The worst-case scenario, Dumler pointed out, would be continuing drought in Kansas with improving growing conditions in other areas that put pressure on prices.

Regarding crop inputs, Dumler noted the steady run-up in seed, fertilizer and fuel costs over the past decade. Chemical costs, in contrast, have held relatively steady, he said.

Crude oil fundamentals point to prices holding fairly steady at current levels, Dumler said, noting that growing North American supplies are being offset by continued global demand growth.

In general, energy and fertilizer prices should be fairly stable this year.

K-State is projecting 2013 diesel prices to stay in line with those of the past two years unless impacted by an unforeseen major event.

Although the price of natural gas, a primary ingredient in nitrogen fertilizer, have dropped, fertilizer prices have been driven higher by high grain prices.

For 2013, he expects higher fertilizer prices but in line with ‘09 and ‘11 prices and still well below the higher prices of 2003-2008.

What farmers should watch for, Dumler said, are shifts in the price relationships between different fertilizer forms and sources.

Dumler also examined cropland value and rental rates. A K-State survey of land sales in 2012 put the price of non-irrigated cropland in southeast Kansas at $2340 per acre — $3654 per acre in east central Kansas and $2163 per acre in south central Kansas.

“There’s still a lot of optimism on land value rates,” he said. “In spite of the drought situation.”

Rental rates for the southeast district were projected at $77 per acre compared to $111 per acre in east central and $60 per acre in south central districts. Kansas Ag Statistics estimates are markedly lower at $47, $58 and $43, respectively.

That comprises a wide range of rental rates and Dumler stressed that there are significant differences within each region due to numerous factors. £