Power Hour: Profits for 2013 Corn/Soybeans? Think 2011

November 30, 2012 08:30 AM

All evidence points to 2012 being one for the record books on the profit side of the ledger, no contest. While 2013 returns will not quite match those of this year for corn and soybean producers, returns in the upcoming year still should be very much in positive territory. Looking at the present year, USDA is forecasting a $7.60/bu. average corn price and a yield of 122 bushels per acre. That comes to returns of $927 per acre.

The numbers for 2013, using present December corn futures of about $6 and a trend line yield of 160 come to $960 per acre, higher still from what the market provides. That’s not an accurate read because it doesn’t factor in federal crop insurance payments, which boost returns by billions of dollars.

William Murphy, administrator of USDA’s Risk Management Agency, says it will probably be January before actual 2012 insurable crop losses are fully known, but yields came in higher than expected. "The $20 billion estimate of losses is too high," he states. Whatever the final number, it will most certainly boost farm profits off the scale into uncharted territory, forecasters say.

"Profits for 2013 will back off a little and look a lot like 2011," says Chad Hart, ag economist at Iowa State University. "Next year still should be profitable for corn and soybean producers, just not as profitable as this year," Hart adds. On the expense side, he’s forecasting a 5% to 7% increase, if that, due in part to rising cash rents and seed costs. He is not expecting a rise in fertilizer costs. Total costs are likely to be in the $4.70 to $4.80/bu. range for corn, and $11.30 to $11.40 for soybeans, both well below futures market price offerings for both crops.

That being the case, Hart thinks price protection is in order. Here’s why: "I can tell a good story on why corn prices next fall should be either $4 or $9." While both corn and soybean prices are likely to be volatile, expect soybean prices to be the more volatile of the two, Hart says. That's largely  because of the importance of South American production this winter and continued strong Chinese demand for beans. That’s not to say corn prices won’t be volatile too, though, with the Western Corn Belt and parts of the Central Corn Belt still suffering from severe drought.

Producers don't actually have to sell crops for price protection, they also could use options, both puts and calls, Hart says. Plus, they can make good use of revenue protection available under federal crop insurance. If, come early summer, it appears U.S. crops are off and running to the races, and South American crops were as good as forecasted, futures prices could take a tumble, Hart says. Because of that, it may pay to protect what’s on the table while still holding onto the option to participate in future price rises should they occur.

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Spell Check

12/1/2012 12:57 AM

  i dont know where these #'s come from. i wish i made over $900/ac. I'd be richer than warren buffet! Thats the problem with these kind of articles, "shot from the hip" math paints a picture that the general public has no choice but to crab about! Heck, i would too! and as far as crop insurance goes, I HAVE NEVER MADE MONEY ON CROP INSURANCE. which is the way it is intended to work. its meant to avoid a farm sale.


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