Cattle producers rooting for further declines in corn prices, and corn producers fretting them, seemed to receive confirmation this week that prices likely will remain above $4.50/bu. or so.
Ending corn stocks in the latest World and Agriculture Supply and Demand Estimates (WASDE) were lowered by 125 million bu. based on increased exports. Taken in tandem with producer intentions to plant about 3.7 million fewer acres to corn this year, as indicated in the recent Prospective Plantings report, WASDE analysts peg the average annual farm price for corn at $4.40-$4.80/bu.
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Keep in mind that the estimated acreage was about 1 million acres below pre-report estimates. Some analysts believe the USDA figure is too light and that there could be more downside risk to corn. Corn futures closed an average of 5¢ lower week-to-week through the front six contracts.
“At this point, the prospects are more positive that U.S. corn prices can average somewhat above $4.50/bu. for both the 2013 and 2014 crops,” explained Chris Hurt, Purdue University Extension agricultural economist, this week. “The closer those national corn prices come to $5, the less downward adjustment is needed in land values and cash rents.”
According to Hurt, production cost for corn is about $5/bu. When prices sank to near $4 last fall, he says producers worried that sustained low prices would erode profits and could decrease farmland values and cash rents.
“When you see usage go up across the board, as we have this year, it's an indication that corn prices near $4 were just too low,” Hurt says. “Being 'too low' means that almost all end users had very high margins and wanted to own more corn. It also means that prices needed to rise to better reflect strong usage.”
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