Another crop growing season passed with no serious weather threats, which has kept corn and soybean supplies high. This promises to keep your input costs low, at least in the near term.
The 2000 corn crop was actually slightly smaller than forecasted, thanks to some late-season dry conditions in parts of the Western Corn Belt, but crop damage was minimal. This year's harvest was still near record levels, which marks the fifth straight year that yields surpassed trend levels.
This year's corn crop is estimated at 10.05 billion bushels, down from previous estimates of 10.3 billion bushels. Carryover corn stocks are 1.7 billion bushels, bringing the total available corn supply to 11.75 billion bushels.
The fact that the corn crop was slightly lower than expected has given prices a slight boost to $1.90 per bushel. Prices are expected to hold at that level until the planting season. The wildcard is next year's corn acreage. Continued low prices, high production costs – due largely to fuel costs – and a better loan rate for soybeans could reduce corn acreage in 2001.
"If we drop production as little as 700 million to 800 million bushels, that makes corn supplies more vulnerable to weather factors," says Chris Hurt, Purdue University agricultural economist. "With just an 11-bushel-per-acre drop in yields we would begin to pressure corn supplies, which would raise prices."
Another factor in corn prices involves declines in world production while corn consumption continues to rise. Hurt says the world has eaten away at the global corn surplus and if a supply problem occurs in any major production area, corn prices will rise.
Corn Exports were expected to increase 17 percent this year, but in the first nine weeks of the marketing year they were down 3 percent. The United States was expected to grab more markets as the Chinese corn crop fell more than 20 million bushel from last year, but that has not materialized, says Darrel Good, agricultural economist, University of Illinois.
Exports, shrinking global supplies and lower planting intentions could equal smaller U.S. corn supplies in the future. Hurt says corn prices could move 20 cents to 30 cents above the loan rate in 2001. That would push prices up to $2.15 to $2.25 a bushel.
For now, since corn prices are expected to remain low throughout this winter, there's no rush to lock in prices. Hurt says late winter is a good time to look at your long-term strategy because crop option premiums are usually fairly low at that time of year.
"If you are able to, consider using weakness in the basis price to buy cash corn after the first of the year and store as much as you can," says Good. "If that's not an option, consider call options if it reduces the volatility."
The soybean and soybean meal outlook is on the other side of the spectrum. While corn acreage is expected to decline next year worldwide, soybean production keeps climbing.
U.S. acreage is sure to be up, due to lower production costs and higher loan deficiency payments than corn. Add increased acreage to the soybean carryover of 350 million bushels and you have a huge domestic supply.
Don't look for the export market to save soybeans, as South America is looking at its third year of near record yields. Competition with Brazil and Argentina for export markets will keep soybean and soybean meal demand low.
All this points to buying opportunities for you. Soybean meal is running about $170 per ton and may decline, depending on the South American soybean crop. Harvest there usually occurs in March. The crop has gotten off to a good start this year with no signs of weather problems, says Good.
"Certainly the South American crop is keeping U.S. soybean meal prices below $180," says Good. "It's the biggest factor weighing on U.S. soybean prices, aside from the large U.S. crop."
This year, the South Amercian soybean crop is expected to rise 8 percent, pushing the total to 60.5 million tons.
In the event of a substantial drought, soybean meal could push up to $220 per ton on the December 2001 futures, says Good.
There is a less than average threat of a widespread drought, according to Elwynn Taylor, Iowa State University climatologist.
La Ni±a may be resurfacing based on trends of atmospheric pressures, says Taylor. This means areas of the Western Corn Belt that were dry last year may be dry again this year, but probably not so drastically as to reduce next season's crop yields. The 2001 national yield outlook from the winter weather patterns and soil conditions points toward a national yield potential of 142 bushels per acre for corn, Taylor calculates.
Prices of other feed grains of interest appear to be holding steady to up slightly from a year ago. Wheat is projected around $2.60 per bushel, which is about the same as the previous two years, says Good. Grain sorghum might be $1.70 per bushel, up from $1.55 per bushel last year. Grain sorghum production at 463 million bushels was down from last year's 593 million bushels, says Good.
For the most part, you can expect the same relief from low feed costs as you've had for the past couple of years. The hog/corn ratio is currently running about 19:1. While USDA's September Hogs and Pigs Report showed signs of expansion, the high hog/corn ratio can be somewhat misleading as memories of 1998 and 1999 have kept it from sparking expansion fever as it might have in the past, says Hurt.
To secure the benefit of low feed costs, you may want to guard against weather problems before the planting season begins, but there is no rush to lock in feed prices before that time.