True, short crops typically have long tails, but this marketing year might escape a major price crash later on, with corn and soybean supplies so incredibly tight. No repeat of 1988 is likely in the works, experts say, when fear of a short crop drove July corn prices to above $7 but retreated by the fall by a whopping $5 per bushel.
"The range for the 2012 marketing year for cash corn will likely be $6.80 to $7.80," says Frayne Olson, an ag economist at North Dakota State University. His estimate is lower than the $7.50 to $8.90 estimate in USDA’s Aug. 10 report. Jim Hilker, an ag economist at Michigan State University, is not far from USDA’s projection, however, predicting a $7 to 9 per bushel range for 2012/13.
What makes Olson more conservative? "I am really concerned about the U.S. and world economy. The whole world has slowed. It wouldn’t take much to put us in a dull mood," he says.
So should corn growers sell their crops early to capture high prices? Actually, no, he says. His crystal ball is still cloudy on how the marketing year will unfold, and producers in drought-affected areas don’t yet know what will end up in their combine hoppers.
Still, forward-selling a portion of the 2012 crop pre-harvest makes sense, but Olson doesn’t advise going overboard. He gives only a 1 in 10 chance of corn prices falling to $6, and a 2 in 10 chance that they will fall to $7. In his view, basis will differ greatly depending on where producers are in the Corn Belt so fixing basis is paramount. For example, basis likely will be tighter in the eastern Corn Belt than further west because the drought hit eastern states especially hard.
With so much uncertainty and certain volatility, Hilker advises farmers to plan sales throughout the marketing year. He thinks USDA’s yield prediction of 123.4 bu. per acre could swing 5 bu. to 6 bu. in either direction in upcoming reports, but more likely will move lower than higher.
Soybeans could be the real sleeper, with prices to peak later than corn, both economists say. "We have more rationing to do," Olson says. USDA predicts bean prices of $15 to $17 based on yields of 36.1 bu. per acre, with Olson predicting slightly higher, $16 to $17. Later marketing opportunities should present themselves, he says.