Tuesday Talks With Dr. Patterson

August 26, 2014

THERE’S MORE THAN CORN IN INDIANA
“There’s more than corn in Indiana,” is the slogan of the family entertainment park in northwestern Indiana, Indiana Beach. You used to occasionally hear a jaunty jingle for Indiana Beach sung by crow on WGN. These days, there’s a lot of corn and soybeans in Indiana and across the Midwest.

The USDA released this month’s World Agricultural Supply and Demand Estimates report on August 12. This is the monthly report containing the USDA’s official forecasts and reported historical figures for U.S. and world commodity markets. The report forecasts a record U.S. corn crop for the 2014/15 marketing year of 14 billion bushels, surpassing even last year’s record crop of 13.9 billion. Excellent growing conditions across much of the Corn Belt have resulted in a record average yield of 167.4 bushels per acre. Similarly, U.S. soybeans are projected to reach a record yield of 45.4 bushels per acre during marketing year 2014/15, resulting in record total production of 3.8 billion bushels. As expected, with little change in expected domestic use or exports, this large production will result in increased stock levels, which will depress market prices for both commodities. Currently, the season average farm price for corn is projected in the $3.55 to $4.25 per bushel range; soybeans are now in the $9.35 to $11.35 per bushel range. Since the report’s release, industry observers have indicated that even larger crops may be harvested this fall.

The current projected corn price is about $0.55 below last year’s price and almost $3.00 below the record price in of $6.89 in 2012/13. The projected soybean price is $2.65 below last year’s price and $4.05 below the record price of $14.40 in 2012/13. The peaks in prices in 2012/13 were preceded by troughs, where prices tumbled following record peaks in 2007/08 ($4.20 per bushel for corn and $10.10 per bushel for soybeans) and then rose. These cyclical movements in price characterize the volatility seen in today’s commodity markets, notably grains and oilseeds. Strong world demand, new uses for these crops (biofuels), generally smaller stocks, and more volatile weather patterns around the world are generating increased price variability. This variability points to the need for good risk management tools for producers.

Although it is too early to say, but some grain and oilseed producers may see decreases in earnings this year. Many, however, were likely holding future’s contracts or delivery contracts at prices higher than the USDA’s projected season averages. The decreases in grain and oilseed prices will help the earnings of poultry and livestock producers buying corn and soybeans for feed. Nevertheless, decreases in farm earnings are expected this year and farm earnings have dropped since the record earnings in calendar year 2012. Decreased farm earnings will impact some agribusiness firms tied directly to the production sector. This week, John Deere announced planned layoffs of some of their production personnel. However, it would be premature to conclude that we are facing a cooling in the agricultural sector, following several years of strong performance by agribusiness firms.

This strong performance and their strong demand for college graduates agricultural programs led to growing enrollments in many colleges of agriculture across the United States. Indeed, Auburn University’s College of Agriculture is expected to reach a record enrollment level this fall.

However, will decreased farm and agribusiness earnings translate into weaker demand for new employees? Over the long term, likely not. The agribusiness sector has been recruiting new employees to meet several objectives. First, these firms are seeking to find new employees to replace the baby boomers, who are rapidly retiring. Two, these firms are continuing to grow their staff to meet growing future demands for food and agricultural products in a growing world. The plant science companies are especially interested in hiring plant breeders and plant protection specialists to develop new technologies needed to increase food production.

So, while current increased supplies of corn and soybeans are pushing farm prices down and agribusiness earnings may been trending downward during the short run. Grain and oilseed prices will inevitably cycle back up. And, despite decreases in earnings by some agribusiness firms, the firms in this sector will likely continue their efforts to build their workforces. So, it may be true after all, there really is more than corn in Indiana.

 

Dr. Paul Patterson is associate dean for instruction for the College of Agriculture and Professor of Agricultural Economics.