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Power Hour: 2013 Still Offers Crop Profits

January 11, 2013
By: Ed Clark, Top Producer Business and Issues Editor
money series
  

This year’s profits will not likely be one for the record books, but 2013 still should offer black ink for crop producers. Strong profits in recent years have encouraged more producers to plant more corn and soybeans not only here in the U.S., but globally. At the same time, the drought-reduced 2012 crop has put a crimp on U.S. demand for those crops.

"Eventually, the crop sector will work its way to breakeven profitability or losses," reports economists in the January Iowa Farm Outlook, from Iowa State University. "But thus far, 2013 does not look to be that year," the report says.

Reason why? This year’s prices, while a significant retreat from 2012 prices levels, are still well above projected production costs. Because of that, 2013 looks to be another profitable year for crop producers.

"But margins are tightening," economists say. This is due both to price declines and an increase in input costs.

One of the most important stories to play out this year will be how quickly demand bounces back if weather if is more in the range of normal and crop supplies grow. "The market did its job in 2012, balancing supply and demand. With shorter crops, prices rose and demand withdrew. But will demand sectors rebound quickly enough (except for soybean exports, which have remained strong) if we are able to produce a normal crop?" The economists note that current demand projections show livestock and biofuel demand continuing to decline.

"Over the last five years, the corn and soybean markets have been strongly supported from the food, feed, fuel and fiber sectors. That run may be coming to an end." For instance, ethanol production has declined 10% from last summer and that demand has not returned.

Moreover, corn usage is down across the board, with soybean demand split. Domestic soybean demand has been reduced but with stronger export demand, due largely to China. One thing seems certain about this year’s markets, the economists say. They are likely to continue to be volatile.

 

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