AFBF Economist Optimistic $5 Corn Will Return, But Farmers Have to Cut Expenses at Today's PricesTue, 12 Jan 2016 18:57:07 CST
America’s farmers are extremely talented in producing crops. Just a few years ago, farmers had strong demand from the ethanol industry and from China, so much that domestic and international demand was exceeding supply. Over the last few years, U.S. grain stocks have been building and that presents a different kind of challenge. American Farm Bureau Chief Economist Bob Young said anytime where demand growth is flat, U.S. agriculture has the ability to out produce the available demand. He said until we end up with a weather phenomenon some place around the world, it’s going to be tough for commodity prices to move higher. Young said a ten billion bushel hit in corn production would be enough to tighten supplies and move prices higher. He predicts some time over the next three years, corn will get back above $5.
“I just really think that opportunity is going to present itself," Young said. "So we need to talk about marketing our grain, maybe in a little bit different fashion than we have before, maybe lengthening out marketing cycles, maybe think about two years, three years in front of us. Use crop insurance to kind of make sure we are protecting ourselves on the other side for when those droughts were to occur or that we would end up with a crop yield hit, but I just think we’re going to have to be very sharp as we roll forward.”
In waiting for higher prices, farmers have to deal with today’s reality by figuring out ways to cut expenses with lower commodity prices. Young said farmers will need to look at all expenses to lower their cost structure. This includes renegotiating land rental rates and cutting inputs from energy to seed. He recommends farmers look at all components.
Radio Oklahoma Ag Network Farm Director Ron Hays, along with fellow farm broadcasters Ken Root of Iowa, Randy Koenen of North Dakota and Lane Nordlund of Montana interviewed Young at the American Farm Bureau Federation’s 97th Annual Convention in Orlando, Florida. Click or tap on the LISTENBAR below to listen to the full interview.
In 2015, cattle prices have been a steep downward slide since August. Young said it was inevitable, because the industry was working on borrowed time. Competing proteins were dealing with the effects of lower production with the Porcine epidemic diarrhea virus and the avian influenza outbreak. He said late last summer pork and chicken production began to be released and beef was running into the face of that.
“I think it was kind of inevitable, that cliff was coming at some point in time,” Young said. “We were probably lucky that it lasted as long as it did.”
In looking at the outlook cattle prices in 2016, Young said producers won’t see a return of those record high prices. He looks for cattle prices to move a little lower this year. The only upside is having lower grain prices, which allows feeders to spend more for cattle. He said there are many unknowns facing the industry from the continued rate of herd expansion, to the recent impact of cold weather on cattle gains and the nation's calf crop.
In the interview, Young also addresses the likelihood of crop insurance being targeted in the next Farm Bill, demand for agricultural goods from China, the Trans Pacific Partnership (TPP) trade agreement and the outlook for many mergers in U.S. agriculture.
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