WEST LAFAYETTE - The U.S. Department of Agriculture’s April 9 World Agricultural Supply and Demand Estimates continued a series of recent reports that have offered corn and soybean producers a more optimistic grain-price outlook than what was expected for most of the winter, Purdue Extension agricultural economist Chris Hurt says.
Cash corn prices fell to near $4 a bushel during the fall and early winter months - a price well below the estimated $5 per bushel it cost farmers to produce the crop. Grain producers were afraid of just how low prices would fall and how long they would persist. Sustained low prices not only eat away at grower profits, but they also can lead to decreases in farmland values and cash rents.
“That fear was very real,” Hurt said. “But recently, both old- and new-crop corn futures have pierced the $5 mark on the heels of USDA reports showing better old-crop corn usage and reduced acreage for 2014 plantings”
Low corn prices drove winter corn use higher than originally anticipated, causing the USDA to increase export estimates by 125 million bushels in the April 9 WASDE report.
Since November, USDA has increased total corn usage by 500 million bushels, which includes increased exports, livestock feeding and ethanol use.
“When you see usage go up across the board as we have this year, it’s an indication that corn prices near $4 were just too low,” Hurt said. “Being ‘too low’ means that almost all end users had very high margins and wanted to own more corn. It also means that prices needed to rise to better reflect strong usage.”
Back in March, farmers reported to the USDA that they would reduce national corn acreage by 3.7 million this spring. Reduced acreage coupled with strong usage means that with normal yields in 2014, corn production will be relatively in balance with usage. Hurt said if that happens, prices could range between $4.40 and $4.80 per bushel for the 2014 marketing year.