A few years ago, the term Peak Oil was in the media. This term represented the notion that the production of oil worldwide had peaked and we would be showing lower and lower production levels each year. With the discovery of fracking of shale oil formations, this term is not used much lately.
My question is have we hit Peak Corn (prices) and how long before they recover. I reviewed the December corn chart and noticed the following highs and lows by year (rounded to the nearest quarter):
- 2009 - Low $3.00 - High $4.50
- 2010 - Low $3.25 - High $6.75
- 2011 - Low $5.75 - High $8.00
- 2012 - Low $5.50 - High $8.50
- 2013 - Low $4.50 - High $7.50
As you can see 2009 represented the low of this contract. That was a record year for corn production (per acre averages) and exceeded trend line by several bushels. From 2010 to 2012, the corn crop did not exceed trend line and with last year's drought, we had near record corn prices. If good weather continues and we get a 2013 crop that nears its trendline with our near record production, will we see prices near the 2009 levels leading into 2014. The ethanol mandate for 2014 is higher than 2009, but we are also presented with overseas demand destruction and additional competition from South America and the FSU countries.
China also appears to be slowing down and their appetite for additional grain purchased may be waning. We all know what the rumor of China selling domestic soybeans did to corn and bean basis about two weeks ago.
All in all, it appears that the recent Peak Corn days are over, but what does this mean to your operation. Have you done a margin analysis to determine how $4 corn (or even lower) will affect your net profit for 2014. For 2013, most farmers have locked in an average price of at least $4.80 assuming 85% crop insurance coverage, however, if the spring price for next year is $4 or lower, can you still make a profit or will your working capital be negatively impacted. Did you build up a large enough cushion in the good times of the last three years to cover a possible large deficit in 2014.
We are not saying that low prices are here forever, but as the above chart shows, $3.25 corn traded hands only three years ago. Will you have $3 corn for 2014.
If so, are you ready for it?!
Crop Progress: Cool Weather Stabilized Crop Conditions
USDA Upcoming August 12th "Supply & Demand" Report