In short, he’s expecting prices to be considerably softer after the next harvest. “This sets us up for a reversal of 2012,” he said.
If the worst part of 2012 for farmers – the drought – is reversed, lower crop prices are likely to be easier to live with. So far, Indiana appears well on the way to reversing the drought; only a band about 50 miles deep along the northern end of the state remains in moderate drought.
Hurt detailed some of the encouraging trends and developments that might contribute to lower prices but better returns for farmers. Although prices are likely to be lower, they won’t collapse. “We’re not talking about any kind of a crash here,” he said.
First, the energy costs that swell the expenses in farmers’ budgets are likely to hold steady or decline. Domestic production of oil is increasing, and domestic natural-gas production has risen so quickly that its price from producers is about a third of its peak price in 2005. As Hurt pointed out, that not only cuts fuel prices, but it cuts fertilizer prices, too. The plummeting price and greater supply of natural gas helps explain the decision announced last month to build a $1 billion fertilizer plant in southern Indiana.
Another factor likely to moderate corn prices is the cap on ethanol demand. Gas consumption in the U.S. has diminished, and that market isn’t likely to soak up more than its peak use of about 5.1 billion bushels of corn, he said.
And even though there are signs of recovery in the U.S. economy, it is gradual. The housing market is finally recovering in most areas, and labor markets in many places that have lagged are tightening a bit. But because growth remains slow, interest rates also are likely to remain low for now, he said. That will keep another important expense low for farmers, helping preserve a profit margin even if crop prices drop.