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Low Expectations?

This Business of Farming

Marketing expert suggests corn will average $3.75 per bu. in 2010-2011 marketing year

Published on: July 16, 2010

Iowa State farm management specialist Steve Johnson is offering up some bearish advice for Midwest grain farmers this summer. He says there's a 65% chance average corn prices will be around $3.75 per bushel in the 2010-2011 marketing year.

Johnson (pictured below) said there's an 18% chance corn will go to $4.25 per bushel, and an equal chance it will fall to a low of $3.35 per bushel.

"You say that doesn't meet my breakeven costs?" he told an audience of 600 farmers at a Wyffels field day in Decatur, Ill. last week. "Well, lower your expectations. Yield is what's driving this."

Of course, a lot demands on the global economy and when world demand will begin to heat back up. But Johnson's logic is based on historic U.S. weighted average farm prices. As trend line yields and numbers of planted acres rise, it stands to reason that farm gate prices will be flat or lower.

Instead of yearning for higher prices, farmers should try to drive costs down and produce more bushels. "You're Walmart – high volume, low margins," he says. "In the commodity business, you're not differentiating your crop so you have to manage those margins, and they likely aren't better than they were five years ago."

Early harvest opportunities Johnson is expecting one of the earliest U.S. corn harvests ever, with combines rolling in early September. He predicts corn will return to a much more normal basis this fall compared to last year's late harvest.

"If you need to move new crop corn, grab the basis ASAP," he says. "But you're likely going to have to bring in dried corn in early September – that will probably be the best harvest basis. The next good basis opportunity will be November."

"This is a great carry market," he adds. "Go ahead and get this corn marketed. I'm a proponent of grain bins, but don't use them to speculate longer. In general it pays to store corn on farm into the spring months."

Bean blues Johnson says there's a 65% chance that beans will be $7.90 per bushel in the 2010-2011 marketing year. There's an 18% chance they will go to $10.25, and an equal chance they will be at $7.55 per bushel.

"There's a lot of competition now," he says. "There's more likelihood of bean prices going down than corn, and that has everything to do with South American crop production."

South America caught the U.S. five years ago in soybean production and that will likely never change. This year S. America will likely produce 50% of the world's soy production, as they had record crops. U.S. produced 36% last year.

Next year soybean crush will go down, because there will be less livestock to feed in the U.S. If American farmers produce an average bean crop with 78 million acres, prices will be lower because ending stocks will double.

"Prices aren't as good today as last winter, and we're not going back to those prices," he predicts.