Farmers in 2010 are expected to again practice the old-fashioned religion of corn and soybeans, says a Purdue University agricultural economist.
Chris Hurt said Wednesday's USDA Prospective Plantings Report portends larger stocks of corn and soybeans. He expects prices for the two commodities to fall, leaving farmers with tighter profit margins.
"There really is nothing in this report that would make us more bullish in terms of corn and soybeans," Hurt said. "This has a tone that would suggest weaker prices until we can perhaps see lower prices begin to stimulate usage in the United States and around the world.
"That stimulation of usage would take some time. We'd have to rebuild livestock numbers. Most of the livestock industry is just beginning to get back to making some money, and it is going to be very hesitant to expand."
How low could corn and soybean prices go?
"Corn could well be in the lower $3 per bushel range," Hurt says. "Soybeans certainly could drop back below the $9 per bushel mark, as we think about new crop beans especially. This begins to squeeze - given relatively high production costs - the margins for producers.
"We're reverting now a little bit back to the norm in U.S. agriculture. And the norm in U.S. agriculture has been we have more ability to produce than we have the ability to consume."
The USDA report, issued annually and based on farmer surveys, projected a 3 percent increase in corn acreage and a slight increase in soybean planted acreage from 2009 across the United States this spring. Read more.
Those additional corn and soybean acres are coming mostly from wheat, Hurt said. "The big decline in wheat acreage is really coming from the fall-seeded crops," he said. "Two things are going on there. One was very low returns and poor prices for wheat prospects and, secondly, extremely wet weather for the harvest season in 2009. We just didn't get the wheat in the ground.
"In Indiana we saw wheat acreage at the lowest level in recorded history - just 300,000 acres. That gave rise, then, to the ability to plant more corn and soybeans. We see a very similar pattern in neighboring states."
Just two years ago, wheat acreage was on the rise. Indiana farmers that year planted around 600,000 acres.
If the USDA report is accurate, farmers should return to average income levels, Hurt said.
"If we go back and look at the last five years, we really see two good crop years in terms of income - 2007 and 2008. The 2009 crop ended up being a very high-cost crop, and most producers didn't really have strong recovery in terms of their costs. And now 2010 shapes up kind of the same way. We are going to see, maybe not a struggle, but tight margins. This is what most producers in agriculture in Indiana and around the country face most years."
Read the full report.