So, do you really want to plant corn?
By Gabe Brown
Understanding Ag. LLC Partner
With corn planting underway in many parts of the country, I couldn’t help but think just how risky that decision is. I am not talking about risk from the standpoint of weather and concerns regarding growing conditions—I am talking specifically about the decision to plant corn, period.
Look at the data from the latest farming intentions report: Farmers indicated they will plant a larger-than expected 97 MILLION ACRES OF CORN, enough to produce 15.9 BILLION BUSHELS, assuming normal weather and yields.
What are we going to do with that record production? Let’s take a look at where all this corn was used last year.
Ethanol production 40%
Poultry Feed 13%
Pork Feed 11%
Beef Cattle Feed 10%
Dairy cattle Feed 4%
Human Consumption 10%
Now, let’s put this in context. Do we think that these usages will continue? As I write this, oil prices are below $25/barrel. Gas and fuel prices are falling. Most ethanol plants are losing a significant amount of money on each gallon they produce. POET, the world’s largest producer of ethanol with 27 plants, recently announced that it will idle production in four of its plants and significantly reduce production in the remainder of them. It is projected that the ethanol industry alone will purchase 2.9 billion fewer bushels of corn in 2020.
How about for livestock consumption? We all know what is happening in the dairy industry. Nationally, 3,200 dairy farms went out of business in 2019 alone. Despite this, milk is being dumped on fields because of overproduction. Some dairy co-ops are offering “buy-outs” so more farms will call it quits.
Consumption by beef cattle accounts for approximately 10% of corn production. What trend are we seeing in the beef industry? Consumption of grassfed beef has doubled every year for the past 20 years. That trend is only being accelerated by the current pandemic. This comes, of course, at the expense of grain-fed beef. Again, leading to lower corn usage.
What about the export market? The combination of a strong dollar and current trade disputes, are leading to lower corn exports. Projections are for the lowest U.S. export total since the drought-impacted year of 2012, while three major corn exporters (Argentina, Ukraine and South Africa) are all projecting an increase in exports.
These factors all add up to the potential of a significant decline in the demand for U.S. corn. What will that do to already depressed corn prices? On March 30, corn was selling for around $3.30/bushel. Take the above-stated factors into account and then let’s guess where corn prices will be this coming harvest season.
Historically, corn is priced about the same today as it was 40 years ago. What have input costs done in the past 40 years? Land, equipment, seed, fertilizer, herbicides, fungicides, insecticides, fuel, storage all have increased significantly. Yes, yields have increased but not in proportion to expenses. In fact, corn yields have actually stalled out the past six years. We certainly cannot say that about input costs.
Sharpen your pencil and pull out the calculator. Make an informed projection of what corn prices will be based on the factors noted above. As an astute business person, you know what your costs of production are. Very, very few producers will be able to show a profit growing corn in 2020. The only thing that could change this is an unforeseen natural disaster.
Is that a gamble that you are willing to take? Why not take control of your financial destiny? Diversify! Do your homework, study the trends, look at the markets, look for opportunities and take an in-depth look at the resources you have available to you. Your farm and its profitability is a direct reflection of you!