by Bekah Porter
IOWA – Harvest season means more than that farmers will head to work.
While producers take to their combines to gauge how much their crops hold, traders are heading to the stock floors to determine how much the corn and beans should cost.
And whether they work from behind a tractor wheel or a briefcase, either will say the process is volatile and unpredictable, at best.
This fall has proven no different.
At September’s end, as farmers were first seeing what the fields could yield, financial experts briefly panicked at reports that the crops could produce fewer bushels per acre than initially anticipated. As a result, prices shot to $5.30 on the Chicago Board of Trade. Not even a week later, the prices plummeted to $4.60 as traders learned the yields might not be all that horrible.
Now, although prices have somewhat stabilized, producers remain unsure of their financial future.
Here’s what Jim Jensen, Iowa State University Extension farm management specialist, had to say on the issue:
Q: What caused the spike in the corn prices?
A: Well, there definitely was a spike, and it happened because all of a sudden the market decided that there wasn’t as much corn out there as they thought. A few months ago, people were talking that Iowa’s crops were in good (condition), and they were even saying that we could have record yields. Then all of sudden we had too much rain and flooding. For example, the Delhi dam breaking ruined a lot of acres. So, when the farmers got out into the field and determined that the yields weren’t as good as was talked about, then the markets decided that the supply would be less, so the price went up to ration that supply. But we still don’t know what we have, as far as yields. In some places, it’s pretty darn good, and in other places, it’s not.
Q: What are the harvest expectations?
A: Depends on where you are. Things are pretty gloomy in southeast Iowa, where yields for corn are about 130-140 bushels per acre, where they would’ve been about 190-200 bushels per acre last year. But as you go north, it gets better, and I’ve heard that Johnson and Linn Counties will have pretty good yields.
Q: What are the prices now?
A: Locally, in the last couple of days, they’ve been working back up a little bit. Originally, they spiked quite a bit, but then they dropped. Now they’re coming back again. Our latest spot price for corn is right around $4.40. And that’s a local price. That would translate to around $4.60-$4.80 on the Chicago Board of Trade. Soybeans are sitting at $10.30 per bushel. And, of course, that can vary between 10-20 cents a day. Those are pretty strong prices, really, a lot stronger than they’d been all summer.
Q: How would you describe the corn market right now?
A: The same way I would’ve described it the last few years — very volatile, very responsive to slight changes in demand and supply. It’s a tough market, but an exciting one in that if it’s flat, then there’s not much opportunity. I would say that this is a market with a lot of opportunity.
Q: What is making the market so jumpy?
A: It’s hard to predict what demand’s going to be. First, we don’t know what’s happening with ethanol. We don’t know if (legislators) are going to allow the E10 blend to go to E15 or E20. If they do allow that, then I imagine there would be more demand, and that would change prices. But, on the flip side, it doesn’t take much to kill the demand, so if you cut back on ethanol production, we wouldn’t need near as much corn, and that would be hard on the market. It’s just so unpredictable because nobody knows what’s going to happen politically. And also, nobody can predict the weather, which means that you can’t accurately predict the yields too far out. And yields drive prices, too. It’s just a real challenge, that’s what it is.
Q: What about the soybean market? How would you describe it?
A: Well, it’s a very volatile market, too. Right now, the soybean demand has been pretty steady. There’s been good growth in the market, and it hasn’t been as erratic as corn, but whenever the demand for corn jumps, that cuts into soybean acres. So, if we need more corn, then those extra acres (to plant it in) has to come from somewhere, and here in Iowa, those acres are probably going to come from soybean acres. So, then, when that happens, the processors who use soybeans and soybean oil (in their products) are going to bid the price up a little bit so the corn doesn’t get all those acres. So even though the demand for soybeans isn’t changing as much as the demand for corn is, I would say that it’s a strong demand that tries to protect its acres. And the other thing is that soybeans are definitely a work market, and we’re not even the biggest producer. It’s South America, so whenever something happens down there in terms of their market or the weather, it affects us.
Q: How do these prices and their changes directly affect local farmers?
A: It depends on what kind of farmer the local farmer is. If he’s a livestock farmer and buying a lot of feed, then as the price goes up, their profit potential is limited, because that grain is a direct line item in the cost of their production. If you’re a livestock farmer, the price of corn going up means there’s less money to be made raising livestock, because it costs more to feed them. But if you’re only a grain farmer, that means more profit for you. But when there’s profit to be made, then everybody wants to get in. The seed people raise their prices. The fertilizer people raise their prices. Everybody wants in on getting their piece of the profit (coming from the higher prices.) Does the price going up help the ag industry? Certainly. But it’s not necessarily helping just the individual farmer, as their margins remain pretty tight as their costs go up right alongside their income.
Q: What prices would you like to see?
A: The price we’re at right now isn’t too bad. The thing I’m worried about is that I don’t want to get the prices too high. We don’t need $5.50 (per bushel) corn like we had a few years ago. That causes problems. But if it sticks where it is now, then there’s a good incentive to grow without drawing too much money to the sector. You don’t want all of these people rushing in, thinking they can make a profit, and then flooding it. Or, if the price gets too high, then fertilizer gets too high, the seed gets too high, etc. I’d rather see it stabilize. We really don’t need input prices to rise.