Prepare for Bankruptcy

[BF2012]

USDA's long term projections through 2023, released Thursday, show national average U.S. corn prices falling to $3.30 a bushel in the 2015-16 marketing year, before beginning a slow rebound that finishes out the decade at $4.20 a bushel.

The projection for the current 2013-14 marketing year for last year's crop is less bearish, with the farm price for corn estimated at $4.50 a bushel.

"Market responses to high crop prices in recent years, both in the United States and in other countries, are projected to lower prices over the next couple of years," says the report released by USDA's Office of the Chief Economist and compiled by the Interagency Agricultural Projections Committee. "Nonetheless, U.S. prices for corn, wheat, and soybeans are projected to remain historically high, above pre-2007 levels. The continuing influence of several long-term factors -- including global growth in population and per capita income, a low-valued U.S. dollar, increasing costs for crude petroleum, and rising biofuel production--underlies these price projections."

USDA projects farm-level soybean prices at $12.15 a bushel this year, falling to $8.85 a bushel in the 2015-16 marketing year and rising to $10.15 a bushel at the end of the decade (2023-24).

[BF2012]

Wait till you have to replace that combine in 2023 at a cost of $ $ 3M....and seed corn is $ 1,500.00/bag.   That is a conservative estimate based upon the last 10 years.

[highyields]

If the equipment companies weren't greedy hounds, then $3.30 corn wouldn't be so bad, and the seed companies and the fertilizer companies,,,,they all got use to $7 corn....

[hardnox]

Seems to me that most producers would be OK under that scenario given the crop insurance pot sweeteners in the Farm Bill.

Although I don't find the projections ludicrous as some do, I do think that it is a case where USDA is talking their book. Under ideal circumstances their new bill works- it deflates the bubble a bit, but with some support under it, then the magic of the market brings supply, demand and the COP back into line.

Reality rarely accomodates policy projections. PIK in '83 made some sense but there was a big drought. F2F in '95 was sold on the premise that Asian demand was going to make subsidies unnecessary. A year later China was exporting corn and 3 years later Asia was in crisis and the whole concept was pitched. The ethanol targets and timeline worked if we could grow the corn as they projected.

Worst scenario here would be if the overdue bumper crop comes along immediately. A 175 corn, 47 bean yield would throw a big monkey wrench into it.

That's approximately what I think we'd get if weather was similar to '82, '94 or '04.

A short crop would probably be much better in terms of making the policy look like it works. Supplies would stay tight for a while longer and the higher costs would be attributed to an act of God.

With a big crop or two, a sane analyst might look at the burgeoning cost and growing carryout and rightly wonder what the heck we're doing here.

No problem, I guess we'll just move on to the next failed policy.

[BF2012]

What am I missing here.    $ 3.30 corn coupled with rising input, machinery and fuel costs, and Crop Insurance guarantees shrinking....What POT Sweetners are you referring to.  

Only way to survive under this scenario is raising 350 bu plus yield averages.   I don't know what pot you're looking into, but it sure isn't the one I see.

[425Cat]

Price loss coverage will protect us on down to 1.95 from 3.70

[hardnox]

I'm far from comfortable with the my back of the envelope calculations on insurance payouts using my numbers and budgets.

But I think that if that price hits early in the period- before the revenue moving average begins to decline- I come out around $300/acre to land and operator. Which ain't sweet but seems highly survivable for most given the strong balance sheets going in.

I have to say that after looking at it this way I probably should retract some of my criticisms of the Farm Bill.  If corn dis go, quickly to 3.30 and beans 8.50, and they'd capped the insurance and not added the revenue enhancements it would have been a bloodbath for large cash renters and probably also triggered a sharp drop in the land and farm equipment markets.

Probably not good policy to blow a bubble and then immediately squash it flat- better to try to let the air out slowly.

Still going to be tough sledding for many under that scenario.

[425Cat]

Well Nox looks like John Deere saw to it that there would be enough money left to buy their new 10 mph planter, maybe, pricing isn't out yet.

[ray h.]

    Looks like it's time to put some of those added acres back in to grass for the grass fed beef lable.I am talking the acres that do not tippicaly produce high trend,but will produce good grass!

[WCMO]

On the crop insurance, the price impact only gets offset if it happens during the year.  Spring prices are based on Feb avg of fall futures price -- if spring price is low, and fall price not significantly lower, then insurance doesn't account for price reduction.  In other words, if the outlook is for low prices, and we end up with similarly low prices, insurance is not going to make up the difference.

On the farm program, when they use historical prices as a baseline, that could provide some protection. However, those options also appear to rely on "base acres", or a percentage thereof.  So, again, the reduction in price is not totally compensated, AND only partially compensated if you actually have the "base acres" (unless we're going to be able to establish a base).  Personally, I haven't had any "base acres" on much my ground in the past, so didn't get to participate in those "direct payments", and am accustomed to operating without the extra assistance, though it would be nice to compete on equal footing with those around me.

Much of what is being said here relates the assumed lower level of income (assuming lower prices without substantially increased yields to offset), along with the higher levels of input costs.  The programs will help offset some of the risk of lower prices in the revenue stream, but does nothing for us on the expense side.  We're not saying the farm program should help lower our costs of production -- we're just saying that something needs to change on the expense side, or we're in for some trouble ahead, especially if we add in some machinery replacement at some point.