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rswfarms
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What is “Normal” for Corn Prices?/ by Jerry Gulke

Opinion from Jerry Gulke on what is the "New Normal" for corn prices going forward. Worth the read on his opinion on this issue. Below is his thought of the "New Normal. Any thoughts on that statement of his saying the $4.50 to $6.50 is the new corn price range?

Article is beow:

          

But, Gulke says, "low" prices may not be as low as they used to be. "I’m hoping we look at a new paradigm where we have a low of $4.50 and high of $6.50, as we build demand back."

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What is “Normal” for Corn Prices?

March 16, 2013

The 2013/14 marketing year might set up as a new dawn in agriculture, says Jerry Gulke. He explains.

Few will argue the extremely high prices seen in 2013 seemed normal. Overall, corn prices have a tendency to normalize.

As drought conditions lessen in parts of the country, Jerry Gulke, president of the Gulke Group, believes the assumption that high prices will continue is also fading. He says through his travels this winter, he’s had a hard time finding anyone who things corn should be $6 this fall.

"We’ve already cut demand and we are opening up production," he says. "With high prices, we’ve incentivized the rest of the world to produce more and for us to consume less internally."

The rainfall and snow cover seen in many areas of the country are bringing optimism about production levels. "We may end up in a late spring, but I think the idea that we can’t produce enough this year is a figment of our imagination."

Gulke believes that the market agrees the yields won’t be as dire as 2012. "We run a risk of having lower prices this year."

But, Gulke says, "low" prices may not be as low as they used to be. "I’m hoping we look at a new paradigm where we have a low of $4.50 and high of $6.50, as we build demand back."

Looking Long-Term at Prices

Gulke says if you look at a corn chart from 2007 forward, you can get some interesting perspective on prices. He says the price rallies of 2010/11 and 2012/13 saw prices peaking in both corn and soybeans -prior to or just at the beginning of the their respective marketing years (Sept—Aug).

"Both rallies were due to production reduction, not demand explosion. China helped in part, but without their year-over-year increase in soybean demand, the rallies would not have been what they were since the global demand base." He says had global ethanol usage didn’t increase, the lofty prices would have been short-lived.

"The price explosion in corn above $6.50/bu in 2008 only lasted six months!" he says. "Corn spent almost 3 ½ years waiting for either a demand explosion (China to the rescue) or a drought to get prices back and hold above $6. China didn’t come but the crop problems of 2011 and 2012 did."
 

 

 

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highyields
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Re: What is “Normal” for Corn Prices?/ by Jerry Gulke

If you look at the charts from the early 80's and compare them to percentage of prices then I come up with $5-$5.50 a bushel for corn average price out over the next 7-10 years.   

 

I still think beans hit $20 before this commodity rally is over.    We shall see, I might not be right on that one.  

 

 

 

 

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rswfarms
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Re: What is “Normal” for Corn Prices?/ by Jerry Gulke

Yes highyields, your estimate is in the ballpark. Gulke's guess of $4.50 for the low corn price brings in around 3.75% for a corn ROI and $6.50 brings in 7.75% for a corn ROI. As mentioned the 50 year average corn ROI is in the 4 to 6% range, so yours and Gulke's estimates are pretty much in the ballpark, meaning they compare very well with the last 50 years of historical data. This is nice to know. Sure, we could get a year where the corn ROI is only 2% and that would be equal to the corn price of $3.75 a bushel. For everyones farm operation there individual ROI would mainly depend on there land cost. The above ROI's are figured only using state property taxes as the land cost since 80% of all Iowa farmland is debt-free now. If some farmer is paying $500/acre in cash rent, that changes things alot. For a $500/acre cash rent guy, any corn price below $4.85, this $500/acre cash rent farmer will be farming for free. If you are farming for free you are not going to be around very long I would say. As you can see, the guys who have all there farmland paid-off, they have a huge advantage over the guys paying cash rent or a large farmland bank mortgage payment. That is the one bad thing about farming, to survive low corn prices means you have to tie up alot of your money in farmland so you land cost per bushel is low. For a farmer with debt-free farmland, he could survive even $3 corn, and still have a $75/acre profit to feed his family. That is using a normal yield. Yes, to have sercuity for your family it requires you to have total land costs as low as possible. In Iowa, even if you have all your land paid-off, you still have an 11 cent per bushel property tax cost, however 11 cents per corn bushel isn't bad for property taxes. Anyway, in a sub $4.85 corn price scenio you could see a number of the Big-Time BTO's have some trouble since they are the ones paying the $500/acre cash-rent in Iowa. The BTO's had a very good 2012 year, but a corn price under $4.85 and some of these BTO's will bite the dust.

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Palouser
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Re: What is “Normal” for Corn Prices?/ by Jerry Gulke

[ Edited ]

Gulke really misses the point. It's breathtaking.

 

Large swings in grain prices have ALWAYS been about production issues - ALWAYS. Demand, with the present exception of ethanol, has always been in a steady trend up - regardless of price - ALWAYS! And ethanol represents the historically unheard of demand explosion, but for an industrial purpose. Minor falls in demand for feed and fuel are always about availability - more specifically - the lack thereof.

 

Gulke REALLY contradicts himself when he says ""Both rallies were due to production reduction, not demand explosion. China helped in part, but without their year-over-year increase in soybean demand, the rallies would not have been what they were since the global demand base."

 

THAT'S the point! China's increasing demand of expanded diets. Ethanol is an industrial activity and mandated by government so it is not a normal food commodity activity. Outside of that there is NEVER a demand explosion. It's ALWAYS a production issue. And if the southern Plains hadn't been gripped in drought, affecting cow calf and grazing, cattle numbers would have been on a normal path. Again, a production problem.

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425Cat
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Re: What is “Normal” for Corn Prices?/ by Jerry Gulke

Crop insurance wil keep em alive one more year