Futures for the 2013 crop may increase between now and fall. The reason: lack of subsoil moisture in the Western Corn Belt, says Chad Hart, ag economist at Iowa State University. Most likely is that prices for the December 2013 contract will be near $6.50, he says, more than 80 cents higher than present futures for the month.
"That said, I can tell a good $4 corn story for fall prices or a good $9 corn story." It all gets down to whether the Corn Belt, the western half of it in particular, gets timely rains this spring and summer. Drought lingers over the majority of the country, he notes, even though the production outlook this year has improved for Illinois and states east. "Given that it was the Western Corn Belt where most of the corn acreage increase for 2012 occurred, the lingering effects of the drought there weigh heavily on the market."
Longer term, he thinks $4-something corn could well be in the cards for the 2014 crop. He notes that for the 2012 crop, had the severe drought not taken place, "we’d be staring and $4 old crop corn prices right now, maybe lower."
Hart notes that right now, some Iowa elevators are offering a $5.30 forward contract for fall delivery of 2013 corn, which is a very good price. "That might be the highest price producers see," he adds, even though the possibility exists for fall prices higher than that.
Given production cost estimates, the 2013 corn and soybean crops are still pricing at profitable levels. Corn is holding a 90 cent margin, while soybeans are at a $1.50 margin.
"While these margins are smaller than we have captured in most of the last five years, they are historically good margins. However, they may be fleeting," Hart says. The degree of price volatility in crop markets is likely to be as large as it was in 2008, when producers saw price swings in the multi-dollar range, he says.
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