Turning the page on a New Year

Farm Forum

12/31/13 — Happy New Year! Its New Year’s Eve and its hard not to think of what the new year will bring in terms of prices for 2014. (It will be difficult to write that, not 2013, on checks – for those of us who still use them!)

Unfortunately, we have come off the mountaintop of high prices in 2012 with a devastatingly small corn crop (-25% from ‘trend’), and soybeans a full 10% below ‘trend’ in 2012. Both crops were considered disasters by many in the trade, with corn a disaster for the decades. Roll forward to 2013, and we had a return to trend yields for the most part, with corn slightly above trend (USDA in November at 161 bu, maybe 163 in January) and soybeans slightly below trend (USDA at 43 bu in November, maybe 43.5 bu in January).

With solid demand for soybeans out of China, some of those high prices are still lingering into 2013, with soybean prices holding in the $13 or higher area on futures so far in 2013. Projected ending stocks of soybeans remain tight for 2013/14, and that is holding prices well in spite of a return to a near normal crop in 2013. So while prices of wheat and corn are $2 or more below a year ago, soybeans are within pennies of last year’s price.

But as we move forward to the new year, its hard to see prices recovering much, even though we are near support levels on long term charts for corn ($4) and wheat ($6). Long-term charts instead point to prices holding at or near current levels for a period of time – building a base so to speak. However, with continued good crops in 2014 and beyond, prices could also push lower if stocks continue to build for these crops.

In 2014, it’s expected that soybeans will attract acreage away from corn and wheat with its price ratio at strong levels relative to these two crops. Private forecasters are expecting 4-7 million acres of corn acreage will shift to soybeans in 2014 – which could effectively kill the high soybean price in 2014. But what will it do to corn prices? And what about wheat, which could have acreage attracted to soybeans as well?

After coming off the mountaintop of high prices in 2012, when we formed new highs for corn and soybeans (but not wheat), we may be disappointed to find out that long term projections do not project still higher prices in the future. Instead, we might have formed the highs for decades now that prices have found a new higher price level. That could be disappointing to some in agriculture, especially those who have been in the business just the past 4-7 years (all golden years). However, the shine could be off this industry for a while, as long-term charts just don’t project continued strong prices into the next few years.

Sure, we will have price rallies from here in corn and wheat, and soybeans may see some price improvements at times with adverse weather in South America or the US. But its unlikely we will see the kind of prosperity in agriculture like we’ve experienced in the past 6 years. In these years, you could bid for 3-5 year rentals too high a price one year, only to find that rental rates continue to rise and go above the rental rate you previously bid – and thus bailing you out from a commitment you could not keep. That strategy worked for the last 7 years, but likely will not work in years going forward. Ditto for land purchases!

So beware, as the things that worked the past 6 years may not work in coming years. And in fact, the opposite strategy may prevail. I learned long ago that one of the most valuable things in management was to know what kind of times you were in, and act accordingly. This is one of those periods where a transition may occur, so beware!