As I study the current grain markets, I discern a trend. It is easy to find an article all about how we will be seeing cheap corn, whether as a new low this summer or at harvest when the reality of another record crop may soon be upon us.
Scanning the web for news articles tonight, I saw some that had appeared on a news feed on my smartphone and some that I had missed. The common thread was that cash corn could get to $2.99 a bushel at harvest.
It is obviously a disaster to sell the crop for $3, so we need to look at these articles. Several are linked by the fact they are all being sourced from a couple of prominent industry analysts. That is to say, there are more articles than there are opinions. Several notable pieces quote the same sources.
Production costs
The disaster that would be selling corn this cheap is that, in 2024, we are projecting a cost of production for corn at a new level. According to a DTN/Progressive Farmer column by Todd Tulman called “Todd’s Take,” the corn cost of production for the years 2015-2020 was $680 per acre. The cost for corn in 2024 has been quoted in that column as coming in at $870 per acre.
Cost of production varies widely depending upon timeliness of purchase of production inputs, geographical location and the variance in methodology for producing the numbers. However, the fact remains that, if we are going to have cheap corn, it will be a disaster for crop budgets.
Farm Journal’s Ag Market.net quotes one source as saying that the high cost of production and the expected bust in prices could combine to yield farmers multiple dollars per bushel losses in net margins.
This reminds me once again of the Biblical principles that the farmer needs to plant in hope, and that the ox that turns the threshing wheel should not be muzzled. The fact is that there is not much hope in the remarks of an analyst that you will lose a couple of dollars a bushel for the privilege of raising corn.
I hope he is wrong, but his thinking makes sense. Also, it might appear that the ox will not be too anxious to do the work of harvest if he is not fed well.
I remember my father in the early 60s, before Earl Butz, trying to explain to someone outside the ag community that his budget showed that he would lose 50 cents a bushel growing corn. The reaction was, “Then why would you plant corn?” Dad said, “If I don’t plant corn, I will lose $1 per bushel!”
The difference, of course, is in the difference between a budget allowing for just annual cost and one using annual and fixed costs. It was Greek to the friend, but it may be completely English for your lender. I cannot imagine the challenge of presenting a legitimate budget to your lender this year.
Cheap corn
In Drovers Magazine a couple of days ago, writer Tyne Morgan delineates the reasoning behind the idea of cheap corn. She interviews Tommy Grisalfi of industry futures leader Advance Trading for his reasoning for cheap corn. Advance Trading is a leading advisor for U.S. elevators and commercial interests.
Grisalfi reasons that 1) We have a great drought map right now. That is, there is a lot of white in the U.S. map, showing areas where there is not drought. In addition, areas like eastern Iowa that show drought have, in fact, gotten significant rain recently.
He says that 2) Historically, this level of non-drought represents a crop that is a third of the way to a record, even when we are just getting started. His phrase is “all systems go” for a big crop.
Then, 3) 2024 so far looks similar to 2014 when we had cheap corn. This came with the new lows of 2010, followed by more low prices of 2014. In 2014, our December futures low was $3.18, yielding a cash price below $3 in many areas.
Finally, 4) If we take our projected increased acres, a good yield and a stocks-to-use ratio that is up 17% in one year, we can project December futures corn prices of $3.20 to $3.50. In cheap basis areas of the country that can mean $3 cash corn.
Unknown
The argument against this projection is that it assumes facts not in evidence. That is, we don’t know what the next few months will bring. It is very hard to project the weather or geopolitical upheaval like the war in Ukraine or disease problems that limit the livestock herds and limit corn use, for example. However, the job of analysts is to predict what prices we will have based on reasonable assumptions. And, if we do that, we come up with a projection for cheap corn.
It remains to be seen what really happens. We obviously should sell corn at today’s prices if we think it is going to go down another dollar instead of up. That is not likely to happen, simply because the farmers do plant in hope, and hope will prevent them from doing forward sales at a loss. Thus, as one analyst says, we will push a lot of 2024 corn into 2025 just because we can’t stand to sell it.
Pappy always said, there are three kinds of people in this world, optimists, realists and pessimists. He said, no pessimists farm and very few realists do. It was not much fun reading this.
I remember a few years ago when we had low prices clear into July, and we history students were forced to recommend sales. Then, we had three amazing events late in the summer that turned prices around (including losing half the Iowa crop to wind), and the expert advice turned out to be wrong.
If what I am reading is right, and what I am writing is painful, optimists should beware.
