Lower prices likely as harvest answers yield questions

The pleasant surprises in the fields for farmers across the country are painting a gloomy picture for those looking for higher prices in the near future.

“The crop is bigger than we think and the grower came in with less hedge than what he normally would. The good news is that he has a big crop, the bad news is he doesn’t like the price,” said Mike Mock, a grain buyer with The Anderson’s, Inc. “If you have 200-bushel corn and you can put it in the bin and sell a forward slot in February and you can get $4.50, that is $900 gross and guys are going to be fine with that for this year. They don’t like the price but we’re trying to get them focused on the revenue.”

The lack of price protection for so many bushels this fall is a real concern.

“It seems like everyone is putting corn in the bin with limited price protection and delayed pricing. Don’t put corn in the bin unprotected. I have no qualms if a customer wants to play around with 10% or 15%, but my fear is that a significant portion of this big crop is still unpriced. Growers are anxious to keep it unpriced and that worries us. We have a much bigger than expected production number and consumption would appear to be not much better,” Mock said. “Corn prices are going to have to go low enough and stay low enough long enough to discourage production on a global basis. Right now, December futures are in the neighborhood of $4.85, I don’t see why that has to trade for higher than $5 with what we know today. The job of the market now is to encourage less corn acres and not more.”

The last couple of years of short crops have lulled many producers into a false sense of price security.

“If you made contracts the couple of previous years, a lot of guys felt like they made a bad decision so they decided not to contract much of anything this year. Last August and September when we were making the highs, we were in a time frame where the grower liked the price and was looking at hedging,” Mock said. “How are you going to talk to a grower about contracts last fall when you have $7.50 cash prices and new crop corn futures are $6.20? By the time we got to January and February when growers were interested in establishing some prices, December corn prices were $5.90 or $5.95 and guys simply would not sell without a 6 in front of them. Then it just eroded away and here we are in the mess we’ve got today. In places where crops were not as good, people were actually carrying old crop inventory right through into the new crop. They were certain it had to go higher. We’re going to have to recalibrate these inputs because we’ve returned to an older price paradigm.”

There is a little more room for higher prices with soybeans, Mock said.

“As sluggish as corn consumption has been, beans have been different. China seems to have an insatiable appetite for protein. And, although the bean yields are turning out better than we thought, they are not spectacularly higher like the corn,” Mock said. “Our inclination would be to see how the South American weather goes with the beans verses playing around with corn.”

The big 2013 crop, though, can only send markets down.

“This is a testament to the technology we have,” Mock said. “It is coming home to roost. Global inventories are just too high. Today, $4.50 doesn’t sound like a good price. By the time we get to March or April many people will be saying, ‘Oh if I could just get to $4.50.’”

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