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Let’s Speculate On Corn Prices

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With the 2012 corn harvest nearly complete, many are starting to speculate on corn prices and wondering how the escalated rates will impact farmers and ranchers.

In my area of eastern South Dakota, the corn and bean harvests are pretty much completed. Combines have been greased and cleaned and tucked away for the winter, and corn piles are being put to use as weaned calves belly up to the feedbunk. Without a doubt, the drought impacted corn yields across the country. Some growers are only harvesting crop insurance checks this year, while others had record-high yields, resulting in what is expected to be the third largest corn crop in U.S. history.

New Photo Gallery: Images From Harvest

According to USDA, “For the 2012-13 marketing year, total corn supplies were forecast in the Oct. 11 World Agricultural Supply And corn harvest combine in fieldDemand Estimates (WASDE) report at 11.8 billion bu. This level of supply is about 13% below 2011-12 marketing-year supplies. Season-average corn prices for the 2012-13 marketing year are forecast to fall within a range of $7.10-$8.50/bu., up from $6.20-$6.30 for 2011-12. Marketing-year corn prices in this range would be record high in nominal terms. Ending stocks for 2012-13 were reduced in the Oct. 11 WASDE to a projected 619 million bu., the lowest since 1995-96, when ending stocks were 426 million bu.”

With speculation increasing as the U.S. corn harvest nears completion, many ranchers are wondering how much it will cost them to feed their calves through the winter.

A Closer Look: Corn Crop Continues To Jangle Industry Nerves 

Does all the speculation really reflect the true corn supply and demand picture, or is it simply based on public perception and emotions? Columnist Alan Guebert challenges the whole system.

“If it’s a bad idea to play with matches, it’s an even worse idea to play with a blowtorch in a fireworks factory,” Guebert writes. “And yet that’s just what farmers and ranchers do every time they price their cattle, corn, cotton and other commodities in global markets dominated by high frequency trading driven by computers running algorithms developed by money-managers who don’t know cocoa beans from soybeans and don’t care. These supersonic freaks of finance, blogger Tyler Durden explained on the Zero Hedge website Oct. 2., ‘stuff quotes, front run each other, spoof, layer and generally make a mockery out of the thing formerly known as the market.’

“That these lightening fast, fabulously large, mostly unseen and nakedly speculative trades move markets is no secret; more than 100 recent academic and government studies have fingered them as the main driver in today’s neck-breaking price moves. Nor is it a secret that banks, big agbiz and traders are greasing every skid in Washington, D.C., to ensure every attempted regulation of this Big-Boy-in-the-Dark game will be fought in Congress and challenged in federal courts. Three items nearly guarantee their success in this fight: money, money and money.”

Guebert isn’t the only one scratching his head about the markets. Others are questioning the validity of forward contracting, as well.

University of Kentucky’s Cory Walters and Richard Preston say that
, “The 2012 corn crop has raised important questions about the validity of forward contracting. Forward contracts are a vital risk management tool because they remove price uncertainty. However, they must be used correctly to avoid increasing risk in other areas, namely yield risk. Risk stemming from revenue and costs rose dramatically in recent years. Production costs also increased dramatically, increasing the risk of losing more capital. Prices throughout the crop year varied tremendously, increasing the risk of ending up in the bottom third of prices. Farm yield risk was likely underestimated because, up until this year (especially for corn), yield has been friendly.”

While we wait for USDA’s final report on the 2012 corn harvest, I’m curious to hear how your corn crop yielded this year. Did the drought wipe out your crop, or did you experience your best year yet? Or, do you have to buy all your corn for your livestock? If so, what is it costing you? How will the escalated corn prices alter your management decisions? And, what are your thoughts about the markets? Is the commodity market system broken? Share your thoughts on all these questions in the comments section below.

Discuss this Blog Entry 8

D. A. (not verified)
on Oct 31, 2012

Drought severely limited yields of corn in our area of western Kentucky. We do not buy any corn nor do we feed our cattle any corn except for crop field residues, which sprouted after Hurricane Isaac, making for good grazing right now. We will continue to raise our ruminant livestock on the forages that suit their digestive systems best. Yes, the commodity market system is broken, and the soil conservation system is apparently broken, and many other parts of our agricultural system are broken.

Lawren ce Wansing (not verified)
on Oct 31, 2012

Dryland corn was less than 30 bu. this year.Irrigated was in the 130 to 150 bu. range.Heat damaged the pollination.
I will be buying some corn for lvstk feed but will be using more commodities tho.Luckily the fall rains have caused pastures to do well. I expect to graze for at least another month.

Paul (not verified)
on Oct 31, 2012

Tyler Durden is a blogger on Zero Hedge not Zero Option.

Robert (not verified)
on Oct 31, 2012

Most irrigated corn in Yuma county in northeast colorado made close to 300 bu. per acre. Dryland corn was maybe 10-20 bu. Corn-stalk pasture will be real good on irrigated fields this winter unless snow covers them over. Pastures are in poor shape going into next year. 8 inches of moisture is all we have had since the start of the year usually average 14-16.

Mark Mulhall (not verified)
on Oct 31, 2012

Yields in Lyon County, IA were spotty. Lighter ground burned up, yet better land held almost firm to the previous year's yield. Our neighborhood experienced about a 10% decrease in corn yield and less than 10% downturn with beans. I'm acknowledging my blessings and will enjoy observing Thanksgiving Day. Several area cattle guys talk they have lots of less expensive corn banked in storage and plan to average down feed costs..

Tom Smith (not verified)
on Oct 31, 2012

this is the worst crop i have ever harvested in all the years of farming, my average was at 25 bu @ acre, however on the upside my beans averaged, 41 bu @ acre which was a very nice suprise. yeilds very so much her is SW Michigan, depending on when you planted and where you were located for the rains to hit you and here they did not hit , devastating is waht i call it and harvesting the corn was a very big disappointment to say the least but i am still glad others did so well

on Dec 4, 2013

It’s a shame that not everyone did well in this year’s corn crop, and how the prices are governed by computers. A friend of mine who usually has a successful crop was affected by the drought too and his year has been dismal to say the least. Lucky for him he had some stock in storage.

on Feb 3, 2014

I guess when corn prices are on a hike, we can also expect to see a sudden surge in crops up in storage as well. Farmers who have already foreseen this circumstance would have already prepared for the worst and stocked up their crops well beforehand. It is a smart move but the catch is that the quantity might be overwhelming which might lead to wastage instead. Thus, it all boils down to proper and early planning and for those who are already familiar with this industry, this will pose no issue to them.

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BEEF Daily Blog is produced by rancher Amanda Radke, one of the U.S. beef industry’s top social media “agvocates.”

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Amanda Radke

A fifth-generation rancher from Mitchell, SD, Amanda grew up on a purebred Limousin cattle operation in which she and husband Tyler are active. She graduated with a degree in agriculture journalism...

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