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Senior Contributor

What is “Normal” for Corn Prices?

A good article on Corn Prices. Worth the read. Article is below:



What is “Normal” for Corn Prices?

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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Senior Contributor

Re: What is “Normal” for Corn Prices?/4% to 6% ROI Ratio Long-Term

He says $4.50 corn may be the "New Low Price", and I tend to agree with that remark. That would put the overall Return on Investment Ratio at 3% for corn, 1% lower than the long-term 50 year ROI Ratio. That 3% is using $4.50 corn, a 200bu yield, and $11,000/acre in farmland values. These numbers in the ROI formula seem realistic today. $5 corn using the above figures would work out to be a 4% ROI Ratio, which is in the long-term 50 year ROI range of 4 to 6%. It appears looking back at the 50 year historical ROI on corn production, the 4 to 6% range has a extremely high support level. The corn ROI Ratio always comes back to this 4 to 6% ROI Equalibium range. Some years it has been as high 10%, and some years less than 0%, meaning corn was produced at a loss to the average farmer. But again, it always comes back to the Long-Term average of 4 to 6%. Good information to know I believe.

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Senior Contributor

Re: What is “Normal” for Corn Prices?/4% to 6% ROI Ratio Long-Term

I do not know what the new normal is.  I do know I have been asked about selling my 2013 corn crop.  3 different endusers are trying to line up supply for next year.  Most years the dairy endusers like to wait until fall to price high moisture corn off the field.  One informed me he would like to price the corn off the average daily 2013 CBOT, minus some other factors. I did not get into the fine points regarding this sale. I believe use has not gone down much at these higher prices.   

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Senior Advisor

Re: What is “Normal” for Corn Prices?

Here's the deal. What people think corn 'should be' is absolutely irrelevant. What it 'will be' is absolutely relevant but unknowable. Therefore farmers and animal producers will always have hope and always produce to capacity.


Had corn been the same and the southern Plains had good pastures there would be plenty of animals to feed. Last i saw it was 95% of last year on feed. There's little evidence corn is related to COF. Corn or cattle can be moved. But pasture can't be moved. The cow/calf producer is basically limited by pasture quality. I believe hogs are about the same numbers and poultry has increased even though some of these operations are in feed deficit areas (Carolinas).


Ethanol is more structural. Cars are becoming more efficient and the middle class is scraping by. They are replacing old cars now but cutting back in other retail areas. I see no change in these trends as the middle class isn't benefitting much from Fed policies, which tends to have tools that cater more to the wealthy, and Congress is bound and determined not to create policies to stimulate middle class jobs. Therefore there is little increased consumer demand to stimulate the wealthy to invest in consumer production.

Honored Advisor

Re: What is “Normal” for Corn Prices?/4% to 6% ROI Ratio Long-Term

Just a couple of points:

1) His 450 is before basis, so make that $4 cash for most of IA. Yes, you could sell the carry if you have your own bins, but commercial storage won't get you much more than the storage back.


2)Why did you just decide to use $5, if you think his $4.50 number is ok?


3) The variability is the killer. 0% is hard to get approved at the bank. creates an interesting self-reinforcing spiral someday. 


4) After all prior shifts in the price plateau for grain prices, land gets irrationally exurbant and then following a lag period, land declines until it returns to the range you suggest. Using $4 cash corn, in your numbers I am guessing that is $6000, not $11000.

Lots of land in the "unproductive" eastern belt should decline back into the 5000 range. Hardly a crisis since very few have paid more than $5000 for land at this point. Your analysis would suggest to me that you should sell your land before its price declines?


5) Probably most importantly...your operation that uses 100% custom services. Custom providers are not even covering the full cost of their equipment and time at your numbers. Obviously, you don't care that they can't provide health insurance for themselves or their employees on the custom fee schedule. Your cost is below replacement cost reality. Which is great for you, and even for the custom provider who is covering some small amount above variable costs in the short run. But the important point is that your cost number is not realistic for most of commercial agriculture. Therefore, your entire analysis has limited or no value to the rest of those reading it.



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Senior Advisor

Re:The correct lingo is

Plateau.  The grain market has reached anew plateau which generally means we will never never ever see grains trading below that level. At least that is what the know it all guys said in the 70's 80's and 90's./


As i understand it that livestock doesn't stay on plateaus. Remember when hog farms were hemmoraging with $8 hogs. I guess the plateau didn't hold.

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