Farm Horizons, Feb. 2016

Ample supply suppressing corn, soybean prices

By Gabe Licht

As of Jan. 28, corn and soybean prices stood at $3.25 per bushel and $8.33 per bushel, respectively, according to the United States Department of Agriculture.

Those prices compare to peak monthly average prices of $7.54 per bushel of corn and $16.60 per bushel of soybeans in August of 2012.

“Corn, soybean, and wheat prices are all off in Minnesota and everywhere in the country,” said Ed Usset, a grain marketing specialist with the University of Minnesota Center for Farm Financial Management. “. . . The fact is things started coming unglued in 2014.”

Usset looked back at the past decade to provide a historical context.

“We had a wonderful period in the latter half of the 2000s, right up to 2013,” Usset said. “Demand was growing very fast.”

Usset tells his students they need to know three words to understand what was driving that growth.

“One is ethanol,” Usset said. “The problem is it leveled off five years ago. The other two words are Chinese imports. China is importing soybeans. That has been growing for 15 to 20 years. It’s still growing despite what we read about China.”

In 2016, China will import as many soybeans as the entire US produced 20 years ago.

“How can they do that? Over that same period, South America – namely Brazil, Argentina, and Paraguay – are increasing soybean production and are s big or bigger than the US and have filled that void.”

Ethanol and exports to China created a slightly demand-driven market.

“It came to an end a couple years ago,” Usset said. “We did have three years in a row – 2010 to 2012 – that were substandard for corn, soybeans, and wheat crops. 2012 was one of the toughest droughts we’ve had in the last century. We had demand in the background and supply was missing the mark.

“Starting in 2013, 2014, and again last year, demand has slowed,” Usset continued. “It hasn’t fallen, but it has slowed. Supply caught up. 2014 and 2015 were wonderful crops in general. We set records in Minnesota in 2015. The country set records in 2014. With back-to-back wonderful years, supply finally caught up to demand.”

Advances in biotechnology have helped increase yields.

“Increased technology is continuing the trend of the green revolution,” Usset said. “If you chart yields, you’ll note yields are increasing. Not every year, but in general, you can use a ruler and see an uptrend. Biotechnology is continuing that trend. Some people would argue it has accelerated it.”

While yields have increased, exports have slowed, due in part to the strong US dollar, Usset noted.

Looking forward, Usset said he feels “relatively good” about the soybean market.

“As long as the middle class in developing countries continues to grow, that speaks well for more protein in diets and good numbers for soybeans,” Usset said.

If higher blends of ethanol are approved for fuel, the demand for corn will grow as well.

In the meantime, low corn and soybean prices are having a ripple effect on the state, especially in the out state areas.

“The fact is from 2008 to 2013 and even 2014, farm incomes were up and it was a nice counterbalance for states like Minnesota because the out state area was doing well,” Usset said. “That helped buoy the out state economy. That’s not happening right now. The domino effect is less money flowing through small towns.”

Farmers will have difficult decisions to make come planting season.

“The price of corn is about $3.30 and the average farmer probably has close to $4 per bushel into that corn,” Usset said. “The big question today on farmers’ minds is you start looking ahead to planting season and asking what to plant. The choices are not good.”

Picking the right one is kind of like flipping a coin, Usset said. He believes there may be a modest move away from soybeans and toward corn.

He noted that Minnesota’s saving grace has been a booming crop.

“The one thing you don’t want to be in a record production year is the region that didn’t get a good crop,” Usset said. “That describes the eastern corn belt. They got the worst of both worlds. We had poor prices, but at least we had the production, and that will be a saving grace for Minnesota.”

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