Prepare for $2.75 Corn - Cowsmo

Prepare for $2.75 Corn

The party’s over for the corn market, and smart producers are locking in prices well into 2015, says one market analyst.

By: Fran Howard, Contributing Writer  – The boom times have ended. And smart producers are forward contracting their crops and locking in prices well into 2015 to ensure some level of profit.

“There will be a tremendous readjustment that plays out over the next five years,” says Dan Basse, president of AgResouce Company in Chicago.

Corn producers have become accustomed to making $200 to $400 per acre above breakeven. Going forward, Basse says, average income over cost levels will land somewhere between a $30 profit and a $30 loss.

“What’s happened is that everyone in the ag industry has had his hand in the farmer’s pocket,” says Basse.

Fertilizer costs, land rents, machinery and equipment costs have all combined to raise the breakeven on corn to somewhere between $4.35 and $4.85 per bushel, he says.

“The key point is that the cost side is where the farmer is being squeezed,” he adds.

Basse expects spot corn prices, Chicago, to drop to $3.50 in 2014, and then to as low as $2.75, possibly lower, by 2015.

While the price plateau for corn is higher than it was before ethanol, it won’t be anywhere near as high as it was between 2005, when the ethanol boom began, and 2012, when corn prices peaked.

“We think the new plateau for corn prices is $2.75 to $5.50,” says Basse.

If Basse is right and corn prices fall to predicted levels as yields return to trend levels, land prices are also likely to plunge.

“I don’t know how someone will be able to afford the land rents that people are getting today,” he says.

While China could provide a growing demand base for corn, demand from the world’s most populous country won’t be anywhere near as consistent as the demand base that a growing ethanol industry provided the the industry as it built to 13.8 billion gallons, the equivalent of nearly 5 billion bushels of corn.

“We have prepared our clients by selling forward,” Basse says. “They are heavily sold this year, 60 to 65 percent sold next year, and 15 to 20 percent sold for 2015 at prices that provide some level of profit. Beyond 2015, I don’t have any advice.”

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