For years now, market prognosticators have predicted a harsh end to the unprecedented good times of the corn and soybean producers. The problem with the forecasts, though, was that they were dependent upon the uncertainties of production, and below trendline yields proved bearish forecasters wrong year after year. The markets were only one big crop away from changing fortunes for farmers, but the big crop remained elusive — until 2013.
The January Crop Report from USDA will provide a final look at the large crop that, when paired with weakening demand, paints a grim short-term future for crop profits.
“Row crop profits have been unprecedented in the history of mankind. There are several reasons that this will, at the very least, not happen in the next couple of years,” said Matt Roberts, Ohio State University agricultural economist. “If we have a 165-bushel crop in 2014, I think it is reasonable to think corn prices could be $3.50 to $3.75.“
The large 2013 crop is pairing up with weakening demand compared to the previous years of short crops and growing demand.
“The biggest thing to understand is that over the last decade we have seen such big increases in demand,” he said. “In response to the big increases in demand, we have seen prices go up and we have seen a big increase in global production. If we look from 2001 to 2011, global corn production has increased by 11 billion bushels, soybeans have increased 3.3 billion bushels and wheat has increased 4.3 billion bushels — roughly an entire U.S of extra production. When we look at that big increase in supply and the flattening demand from ethanol, that leads me to look for two to three years of steadily lower prices with more acres in production and no additional demand to eat it up.”
The single biggest driver of demand for U.S. crops in the last decade has been China’s livestock industry.
“It is very easy to open these CAFOs in China if you can just imprison environmental activists. Pork consumption exploding in China and that is a lot of soybeans,” Roberts said. “The No. 1 driver in demand has been with the Chinese oilseed consumption to feed their domestic livestock production. By my calculations, roughly 30 million more acres of soybeans needed to be planted around the world just to meet their import demand.”
The growing instability in China’s economy is a concern for the future, but for now the Chinese livestock boom shows no signs of slowing as it provides the meat more affluent consumers are demanding.
“The Chinese demand for soybeans is apparently as strong as ever. That demand is still growing,” Roberts said. “There are dangers to the Chinese economy, but right now it is the last leg holding up agricultural prices.”