Hold onto your working capital—you might need it
If this year’s corn, soybean and wheat yields approach anything resembling a normal trend line, farm income for crop producers is likely to fall lower, potentially near break-even by year’s end. The picture is a far different one for livestock, however. Coming off major losses in 2012 due to high feed costs, cattle, hog and poultry producers could see a profitable second half of 2013.
"The average 2013 corn crop could be below $5 per bushel," says Pat Westhoff, director of the Food and Agricultural Policy Research Institute. U.S. corn acres could match or exceed 2012, with increases globally as well, combined with a cutback in demand. Low $11 soybean prices are a possibility.
At press time, winter wheat growing conditions were unfavorable. However, if winter wheat and spring wheat harvests are surprisingly good, high corn prices could support winter wheat prices this summer, while spring wheat prices at its later harvest could be much lower, Westhoff says.
Given low stocks of corn and soybeans, another year of severe yield losses could cause prices to spike again. "There is a 10% chance of $8 corn and a 10% chance that corn will be under $4," Westhoff says. "It’s tough to plan with that amount of uncertainty. Tacked onto that is uncertainty about farm policy." Weather will be an even larger price and income variable, given tight stocks for key commodities.
Back to black? Livestock might swing into black ink in 2013, with a return to trend yields and lower crop prices, says Nathan Kauffman, economist with the Federal Reserve Bank of Kansas City. Livestock producers could see profits as early as the second half of the year, contingent on good weather.
"Profits for crop producers in 2013 will back off a little and look a lot more like 2011," says Chad Hart, ag economist at Iowa State University. "This year still should be profitable for corn and soybean producers, just not as profitable as 2012."
Gary Schnitkey, University of Illinois economist, predicts another profitable year for crop farmers, but a wide spread between corn and soybean profits. He forecasts returns to Illinois corn farmers of $654 per acre, higher than 2011 but below 2012 returns of $699. Soybean returns are forecast at $405 per acre, below $484 for 2012.
Rabobank economists project ag prices to decline, with corn futures falling 24% from the first to fourth quarter. "The transition from the second to third quarter will be the most volatile as the U.S. corn complex transitions from deficit to surplus," they say. Wheat futures are forecast to fall 23% from first to fourth quarter, with declines in soybeans expected too.
"I can tell a good $4 corn story and a good $9 corn story," Hart says. It could end up being a wild year.
You can e-mail Ed Clark at email@example.com.
- February 2013