Corn Prices Expected to Improve
Farmers rattled by the dip in value of their soybean crop likely will see prices for their corn go up next year, one of the few optimistic projections made at a recent conference on future profits in farming.
Most of the graphs presented at the Nov. 2 event hosted by the Department of Agricultural, Environmental, and Development Economics (AEDE) at The Ohio State University offered a grim outlook: a decline in soybean crop prices resembling a steep ski slope, shrinking pie slices representing Chinese demand for U.S. soybeans.
But there were a few bright spots noted at the Agricultural Policy and Outlook Conference, including a projection that corn prices could improve in 2019.
As the world supply of corn shrinks, that will drive up corn prices, said Ben Brown, manager of the farm management program in the College of Food, Agricultural, and Environmental Sciences (CFAES).
The per bushel marketing average price of corn was $3.36 in 2018, and that likely will rise above $3.60 in 2019, Brown said.
Though seemingly a small increase, every 10-cent hike in corn prices results in about $19 more in earnings per acre of corn.
Crop prices for corn and soybeans have plummeted since the summer, but corn prices have begun to rebound, Brown said.
The current low price of U.S. corn spurred exports of the crop beginning in September, Brown said.
“There’s some bargain shopping going on with countries including the European Union, Vietnam and Israel,” Brown said. “The question is if it will continue.”
Another factor could boost corn prices.
Last month President Donald Trump directed the Environmental Protection Agency to begin the process of allowing the year-round sale of E15, gasoline with a higher percentage of corn-based ethanol than standard gas at the pump. Most gas sold in the United States is mixed with 10 percent ethanol; E15 is mixed with 15 percent ethanol.
But Brown said he doesn’t expect an immediate increase in the demand for corn as a result of the potential expansion of E15 use because of the time it will take to put the new policy in place.
And while corn prices may increase, corn is still expected to bring lower profits than soybeans next year given the costs associated with planting the crop.
Price projections for soybeans aren’t as optimistic as they are for corn. Prices for soybeans, already low, could plunge even further, Brown said.
In June, China, the world’s top consumer of soybeans, imposed a 25 percent retaliatory tariff on U.S. soybeans, causing a dip in the world price of soybeans and cutting China’s demand for U.S. soybeans.
Chinese companies, which typically buy a significant portion of their soybeans from the United States, now buy more from Brazil, even though the price of American soybeans with the tariff is about the same as Brazilian soybeans, Brown said.
“Given the competitive nature of the prices, it is surprising we aren’t seeing more U.S. soybean sales to China,” Brown said. “It is possible that the Chinese government is discouraging the purchase of U.S. soybeans.”
The United States-China trading relationship soured in the spring after President Trump imposed a 25 percent tariff on foreign steel and 10 percent on foreign aluminum purchases in the United States. In response, China leveled the additional 25 percent tariff on U.S. soybeans.
“You in agriculture are caught in the crossfire of a trade war,” Ian Sheldon, an agricultural economist told the crowd at the Nov. 2 conference. Sheldon is the Andersons Professor of International Trade in AEDE where Brown also works.
Even with tariffs in the United States to deter purchases of Chinese products and tariffs in China to discourage purchases of American products, the United States still imports far more from China than it exports, and that gap continues to grow, Sheldon said.
That’s despite the fact that the tariffs imposed by the United States were partly intended to bring down the trade deficit by decreasing U.S. consumer purchases of products from China, Sheldon said.
“The tariffs are simply feeding into the trade deficit,” Sheldon said. “Tariffs against Chinese products will only work if Americans change their saving and consumption behavior.”
President Trump said in a tweet Nov. 1 that he had had a “long and very good conversation” with Chinese President Xi Jinping on trade and that it will continue later this month. Following the tweet, soybeans prices on the stock market increased 30 cents to close at $8.69 a bushel.
But Sheldon said he was skeptical the tweet means a trade resolution between the United States and China is close at hand.
“I’ll believe it when I see one.”
Source: Ohio State University