The party's over for the corn market, and smart producers are locking in prices well into 2015, says one market analyst.
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.
Listen in on an AgriTalk interview with 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.