TOWANDA, Ill. — Corn prices have supported more acres in
recent years, but that may be shifting to encourage more soybean acreage.
“It’s been just the opposite in recent years. Corn has been
priced high relative to soybeans,” Darrel Good, University of Illinois
agricultural economist, said at Soy Capital Ag Services’ recent field day.
“It needed to be that way in order to attract more acres
into corn, and now we’re saying we probably don’t need to expand corn acres
“In fact, we may need to expand soybean acres going forward,
and if that’s the case, then soybean prices are going to have to do the work.
They’ll have to be relatively high compared to other crops in order to get that
Evidence of that transformation already is evident in the
markets with the cash harvest bid price ratio for soybeans and corn at about 2.7
to 1, compared to 2.2 to 2.3 to 1 in recent years.
“I think, first of all, you’re going to see soybeans prices
high relative to corn, and I think you could see soybean prices remain nominally
high going through the year,” the economist said.
This outlook is a result of what is happening with
production and demand for both crops.
The U.S. Department of Agriculture recently forecast a
national corn yield average of 154 bushels per acre and total production of 13.8
billion bushels. The widespread hot, dry weather sparked rumblings of lower
yields, but planted acres are above market expectations.
“I’m fairly confident that we have a large corn crop that we
will harvest,” Good said.
“Whether it will actually reach 13.8 billion bushels or not
is in question, but I think it will be north of 13.5 billion bushels and that’s
large enough that we probably will see some buildup in corn inventories by this
time next year.
“Because of the drought last year and the smallish-type
yields in 2010, 2011, we’ve pulled our inventories basically to pipeline levels,
and prices had to ration use this past year.
“We should be moving out of that scenario this year into a
more abundant situation where we can see consumption of corn expand and at the
same time probably have larger year-ending stocks going into the harvest of the
The big question is how big the year-end stocks will
“Obviously, that depends in part on how big the crop is, and
we think it’s big enough to lead to some buildup but two or three billion
bushels one way or another is pretty important in terms of year-ending stocks,”
“But the other issue is really just how big the market for
corn is this coming year even with the lower prices that we’re now looking at.
“I think you can now argue in many cases that we’re now
experiencing what I would refer to as a pretty mature demand situation on
Domestic demand for corn increased rapidly the past several
years primarily due to ethanol.
“But now, we’ve reached the blend wall for E10 and kind of
maxed out our capacity to blend 10-percent ethanol into the domestic fuel
supply,” Good said.
“So when we look at the past two years, our domestic ethanol
consumption has been flat. The question is what’s going to push that higher
Any potential ethanol expansion would hinge on either more
fuel consumption with the E10 blend or a larger E85 market demand.
“That will depend in part on policy decisions. EPA has a lot
to say about how these mandates will be enforced in 2014 and beyond. But it also
has a lot to do with pricing,” Good said.
“You have to be able to price E85 competitive with E10 in
order to get consumers to buy in to larger consumption. The lower corn prices
should stimulate that as long as gas prices remain high. This would allow
ethanol to be blended into E85 and make a competitive price at the pump.
“We’re not quite seeing that yet. On average, E85 prices
nationally are not yet at a competitive level with E10, but we’re not yet using
the lower-priced corn, and once we get into harvest and get lower-priced corn,
we will see more competitive pricing on E85.
“This is a really critical issue for corn demand going
forward. Last year, we used an estimated 40 million gallons of E85, and really
to expand the blend wall to any measurable amount, that has to be hundreds of
millions of gallons, if not one or two billion gallons.”
However, of the 105,000 gas stations in the U.S., only about
3,000 dispense E85, and most of those are in the Midwest and not in the
heavier-populated east and west coasts.
Corn exports also have been a challenge with the 2012-2013
marketing year having the poorest export year of U.S. corn in 42 years.
“You have to go back to the early 1970s to find a year when
we exported less corn than we did this year,” Good said.
“We found out that high prices of corn encourages somebody
else to produce corn and we’ve seen in the last six or seven years about a
50-percent increase in corn production outside the U.S. and that corn is now
competing every heavily with U.S. corn in the export market.
“We do expect some rebound in exports this coming year. With
a bigger crop and lower prices, I think we will be more competitively priced in
the world market, but our competition didn’t go away.
“That acreage that was brought into production will stay
there and continue to produce large supplies that will compete with the
“We may get a bit of a bump from increased demand from
China. I think they will buy more corn and buy it from the U.S.
“Percentage-wise, we could see a huge increase in corn
exports this coming year. The bad news is that still leaves us well below where
we were two years ago and a very dismal export demand for U.S. corn.
“So right across the board you say big crop, lower prices,
we’re going to bump up exports, we’re going to bump up ethanol use, we’re going
to bump up feed use, but we won’t use 13.5 billion bushels of corn this year.
“That says that corn is going to be much more modestly
priced than what we’ve experienced the last couple of years.
“When you get back to the large crop, you’re going to push
prices back in the $4.50 to $5 range. That’s the new $2.50 corn that’s $4.50
corn and that’s basically where we’ve come to and I think that’s basically where
we’re going to trade for an extended period of time.
“So, rather than $6 to $8 corn, I think we have to be
thinking in terms of $4 to $5 corn is kind of where we are and where we will be
for a while.”
From the soybean perspective, USDA estimated a large crop,
but not a production record.
“And not a huge crop in respect to our soybean demand base,”
Good said. “Unlike corn, where I see a very mature demand, I think we still have
opportunities to see some demand growth and some growth in soybean consumption.
“We are potentially looking at a much tighter balance sheet
on soybeans than we are corn for this year.”
USDA estimated an average soybean yield of 42.6 bushels.
Good said he believes there is a good chance that will be reduced due to the hot
and dry August across the Midwest.
“On the demand side, we have a potential for a very robust
sales to China this year. We’ve already sold China 400 million bushels of
soybeans for delivery in the incoming marketing year,” he said. “The USDA is
pretty aggressive with their forecast of how much soybeans China will buy from
“So, even with competition from South America, we’ll get our
share of the pie in the year ahead, and that should give us a recovery from
exports that were limited this year because we basically didn’t have the beans
The other area that potentially bodes well for soybean
demand is biodiesel.
“That combination of China demand stays in place, biodiesel
ramps up, then we have a pretty tight supply-demand balance on soybeans and
soybean prices stay high relative to corn for an extended period,” Good
“You could argue that we’ve seen the low in the soybean
market. That’s not to say we couldn’t retreat from where we are today, but there
is some downside.”
“Beans prices are higher than we thought they would be, and
I’ve always been of the opinion that under those scenarios we should reward the
market with a few sales. Don’t get crazy, but to see 20, 30, 40 cents a day is
not unusual in the soybean market and gives us some pretty good opportunity,” he
“You don’t see much of a carry in the soybean market. Next
year’s price is lower than this year’s price and that’s to be expected because
between now and then South America will have a crop and the market does not need
to pay anybody to store soybeans because there are plenty of soybeans that will
be available to the market.
“I’m not quite as concerned about 2014 soybeans as I am
corn. I think those prices will have to be well supported in order to buy a few
more acres going forward.”