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Expect 2012 Returns: $1/bu. corn; 75¢ soybeans

January 9, 2012
By: Ed Clark, Top Producer Business and Issues Editor

This year looks to be another profitable one for corn and soybeans, although less so than 2011, based on current futures prices and production costs.

Right now, corn futures are pointing to roughly $1/bu. returns for 2012. This compares to a tie between 2010 and 2011 with returns of $1.90/bu. for Iowa, the all-time record, according to the January Iowa Farm Outlook, published by Iowa State University’s Department of Economics.

Soybean margins were above $3/bu. for the 2010 crop, although they dropped slightly in 2011. The tightening continues for 2012. Before the recent run-up in soybean prices, the projected 2012 margin was at break-even. Now, there is roughly a 75¢ per bushel margin in place for beans, Iowa State economists say.
Given continuing concerns about the economy and extreme weather conditions, the crop markets will remain choppy during the first third of 2012, according to the report. Significant price swings in both directions is likely as planting season approaches. "Luckily, we will experience this price volatility starting with profitable price levels. Good prices can be locked in today, but we may see better marketing opportunities coming up," the report says.
One of the keys to corn’s price strength for 2011 was the ethanol industry. Last year was a record year for ethanol, in terms of production, consumption and trade. "With over 13 billion gallons of ethanol produced in the U.S. and the vast majority of that production based on corn, ethanol’s demand for corn provided tremendous support for the corn market," the economists report.
Early in 2011, gasoline prices shot up by 40%. That price run provided room for ethanol in the fuel market and set the stage for the record year. While gas prices backed off for the rest of the year, 2011 gas prices still ended up 10% higher than 2010.
Ethanol prices lagged behind gasoline prices during the first half of the year, catching up right before the August swoon in the financial and fuel markets. A surge in ethanol production to finish the year drove ethanol prices down in December. Thus, ethanol prices were down nearly 8% for the year.
The drop in ethanol prices is bolstering blending margins going into 2012. Throughout most of 2011, not only were ethanol blending margins positive, they were often significantly above the value of the ethanol tax credit. While the tax credit has expired with the new year, the blending margins look to remain positive for the foreseeable future, the economists note.
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