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Corn+Soybean Digest

2013 Market Questions


Every new year is an opportunity to wipe the slate clean and look to the future with a fresh eye. Higher and higher land prices indicate that grain production has been a good way to earn a living over the past few years. But as I look forward I have questions.

Will 2013 be our fourth consecutive year with yields below trend? Since 2010, the upward trend in grain yields has taken a break. 2010 was an off year. 2011 was a bigger disappointment. 2012 was one of the worst years in the last century. Surely we are due for a good year in 2013!

Over the course of many decades, you would have lost a lot of money betting against the productive capabilities of the Corn Belt. However, while four consecutive years of below trend yields are rare, it is not unprecedented. For example, from 1974 through 1977, U.S. corn yields were 5-20% below trend each year. Are we allowed to consider the Dust Bowl era? From 1930 to 1936, U.S. corn yields were below trend in every year except 1932.

It is difficult to kill a crop in January, but you and I look at the same weather maps. Five of the top eight corn producing states – Iowa, Nebraska, Minnesota, South Dakota and Kansas – are experiencing "extreme to exceptional" drought conditions in major production areas.

Continued drought explains why I’ve been so slow to start pricing 2013 corn, soybeans and wheat.

How strong will basis get by summer? In summer 2011, corn basis levels in Northwest Iowa went to strong “overs” for the first time since 1996 (see chart). Last summer, the soybean basis joined corn in positive territory. This is what happens when poor production and strong demand make available stocks scarce.

Demand has slowed, but grain supplies are way down. The battle for scarce stocks has begun, and basis levels in Iowa are already 20¢ higher than a year ago. Nearby basis levels of 50¢ over and higher are possible next summer.

By the way, these figures are for northwest Iowa, traditionally the area for the lowest basis levels in Iowa. Your basis upside is even better if you are farther East or South, or closer to the river.

When will the good times end? I collect old family photographs (pre-WWII) and I was amazed to find so many from the decade before the First World War. I’m talking about a poor Norwegian farm family with a modest plot of land – photographs were expensive. Where did they get the money for so many beautiful pictures?

Such was life during the Golden Age of U.S. agriculture. The decade before 1914 was a time of high food prices and farm prosperity. This era set the standard for good times in agriculture, a standard that would affect farm policy and “parity pricing” into the 1970s.

We are several years into another Golden Age for grain producers. I hope it continues for several more years, but my crystal ball is cloudy. My ancestors clearly enjoyed their newfound prosperity. Follow their lead in 2013. 

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