Big Report Numbers Could Yield $5 Corn – and Lower Feed Costs for Dairies

March 11, 2012 11:26 PM

The dairy sector hopes USDA's March 30 Prospective Plantings report will show more corn acreage and result in lower crop prices.

Is $4 or $5 corn possible? Yes, if USDA’s March 30 Prospective Plantings report shows 94 million acres for the yellow-eared crop in 2012.

"That would be a huge deal for dairy producers," says dairy trader Robin Schmahl of AgDairy LLC.

Already in a recent outlook, USDA has indicated that it anticipates 94 million acres of corn for 2012, Schmahl says. That acreage number -- the highest in 68 years – means the U.S. could be looking at a big crop and, perhaps most importantly, an ample carryover of 1.6 billion bushels by year-end 2012.

"If that happens, we could be looking at $4 corn," Schmahl says. "With corn at that level, dairy producers won’t slow down milk production. They haven’t slowed yet."

2011’s strong milk prices and this year’s mild winter have helped boost U.S. milk production. In its World Agricultural Supply and Demand Estimates released March 9, USDA increased U.S. milk production by 700 million pounds from February, to 199.7 billion pounds.

"That’s getting close to 200 billion pounds, which could be an all-time high," Schmahl says.

On the corn side, a good-growing season for those 94 million corn acres could result in 14 billion bushels of corn, says James Dunn, professor of agricultural economics at Pennsylvania State University. That compares to last year’s 12.3-billion-bushel crop.

Dunn believes a big corn crop could push prices down to the $5 per-bushel range. He’s not alone. "The CME is trading March corn at $6.50 and December corn at $5.40, which means they see lower prices in the fall," Dunn says.

But adverse weather could limit corn yields and, subsequently, production. Last year, La Niña, with its wet, cool conditions, damaged corn crops in Pennsylvania and New York. With the possibility of another La Niña year in 2012, Dunn sees potential for reduced corn yields in the U.S. Corn Belt. That would eliminate the chance of a 14-billion-bushel crop -– and any hopes for corn prices to fall from their current $6-per-bushel range.

Charlie DeGroot would welcome lower corn prices at his Fresno, Calif., dairy, which milks 2,400 cows.

"Corn markets directly affect our family farm," DeGroot says. "Corn is something that can’t be replaced easily. The dairy industry cannot be sustained with high corn costs."

Yet DeGroot doesn’t expect cheaper corn to answer all his problems. He’ll still have to deal with falling milk prices, which recently have dropped below his cost of production. March milk prices have declined to about $14.25 per cwt., down sharply from $17.31 a year ago. Production costs for Central California dairies like DeGroot’s have climbed to $15-$16 per cwt. Prices for major feed commodities like alfalfa and cottonseed remain high, as do energy, labor and regulatory compliance costs.

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