With production likely to outpace demand, price pressure is on the horizon for corn futures, according to an Iowa State agricultural economist.
Speaking at the Top Farmer conference at Purdue University in Indiana on Friday, Chad Hart said if the US gets the rebound in production this year that early USDA estimates suggest, corn could see the same kind of downward price pressure the market experienced in 2013 and 2014 when output recovered strongly in the aftermath of the 2012 Midwest drought.
“That will tighten margins up; incredibly so,” Hart told the crowd.
Corn production in the drought year slumped to just 10.75 billion bu, with the season average price that marketing year reaching US$6.89/bu. However, the crop the following year bounced back to 13.82 billion bu, while the average price fell to just $4.46. With another big crop in 2014 of 14.21 billion bu, the 2014-15 average price slipped further, falling to $3.70.
In unofficial baseline estimates released back in November, the USDA projected the 2023 US corn crop at 15.26 billion, way up from 13.93 billion in 2022. That estimate is based on a planted area of 92 million acres (versus 88.6 million last year), and an average national yield of 181.5 bu/acre, well above the 2022 average of 172.3 bu.
Hart did not say where he believes corn prices might ultimately end up for 2023-24 but did indicate the USDA baseline production estimate might not be far off. Indeed, he noted the average national yield the past three years exceeded 170 bu/acre, even when large parts of the Corn Belt suffered from dryness and drought.
“So, is 181.5 bu/acre out of the range of possibilities? Oh no, it’s not. In fact, it’s just the trend when you look back over the last 30 years.”
But rather than the supply side alone, where Hart said he sees the biggest worry is on the demand side. Exports are likely to suffer in 2023-24 amid the potential for a global recession, he said, adding he believes shipments may even suffer beyond the new-crop marketing year and into 2024-25. Among the export destinations, China remains a particularly big wild card.
“As global incomes take the strain, that tends to mean less export demand,” he said. “I think that’s the big challenge, not only for 2023 but I would argue looking beyond that as well.”
Logistics could negatively impact export demand as well, Hart said, noting the continued low water levels on the Mississippi River and a labour crunch he said could be one of the biggest challenges American agriculture faces over the next five years.
Waning feed demand may be another factor to watch, especially as the American beef herd continues to shrink in the wake of drought on the central Plains that has devastated pastures. Already in 2023, outlooks suggest US beef production could be down more than 2%. And unless drought improves quickly, feed demand could remain a potential soft spot.
“The economics for cattle would say, ‘yeah, we should be putting some out on the Plains.’ But the grass would say; ‘don’t you dare.’ In fact, in talking with the cattle guys throughout the west, I’ve had a few tell me they don’t expect the cattle herd to start growing again until 2025.”
Once a novel demand driver, the US ethanol industry is also becoming more mature, Hart said, with any expansion on that front likely to be minimal. The reality is the American consumer is still not travelling as much as in pre-pandemic days, and with vehicles becoming increasingly fuel efficient, the upside in ethanol demand is limited.
"The tightening margins are coming. Realistically, the question is how long does it take us to out produce demand?”
