Much of the discussion in crop markets recently has been focused on the potential for low corn prices in 2014 - a very different situation than the one agricultural economists found themselves in last year, when the drought-reduced U.S. crop invoked forecasts of extreme prices on the high side.
“While the corn market sentiment seems to have become very negative for price prospects for an extended period, the futures market is actually offering higher prices for the 2014 crop than for the 2013 crop and even higher prices for the 2015 crop,” University of Illinois agricultural economist Darrell Good said. “Prices for the 2016 crop are also higher than prices for the 2013 and 2014 crops.”
Good said the premium for 2014 and 2015 crops may reflect carryover in the market from the large 2013 crop and the prospect of a large crop at the end of this year.
“The market is anticipating prices to move higher next year and remain higher than current prices for the next three years," he said. "The price structure seems to be at odds with general market sentiment.”
Good explained that higher corn prices next year and beyond would have to come from some combination of reduced foreign production, smaller U.S. crops, or an increased demand for corn.
“The generally high corn prices since 2006 have stimulated an increase in foreign corn production,” Good said. “The USDA estimates 2013-14 foreign production to be 46 percent larger than production in 2005-06. ...Reduced production would have to be the result of poor weather and lower yields. It is likely premature for the market to expect widespread poor yields in 2014, particularly with generally favorable weather conditions in South America. Some increase in corn demand outside of the United States associated with population and income growth seems to be a reasonable expectation. Potential corn demand by China is of the most interest. A small increase in domestic demand for corn could also be generated by an expansion in broiler and hog production."
Good said that the most commonly cited reason for higher corn prices next year is the expectation that U.S. producers will trim acreage and production in response to the decline in corn prices, but he said he doesn't believe that is likely.
“Smaller corn acreage would have to be the result of a substantial shift to other crops," he said.
Good said that corn producers are presented with a challenge in making pricing decisions for next year’s crop.
“Current conditions suggest that corn prices next year will be lower than currently reflected in the futures market, but it is early and a lot can change,” he said. “For those who use crop revenue insurance, the challenge is to assess price risk between now and the end of February when insurance prices are established."