Here in southern Minnesota, the corn harvest is in full swing. This morning on the local radio station’s farm show, seed corn representatives were citing test plot yields of 220+ bu/acre. Given the many weather challenges of this growing year, these yields are remarkable.
Along with very good yields, the crash in the financial markets appears to have removed many of the speculators from the commodity markets. No longer are pork producers faced with purchasing corn at $6-8/bu or soybean meal at $400/t. This past week I was at a producer’s site where he confirmed that he had purchased all of his estimated soybean meal needs for the next 12 months at $260/t delivered price. Again, just 2 months ago this was thought to be an impossible price objective.
On the other side of the equation, cash expenses for growing feed grains remain high. In late August, it was projected that the cash costs associated with growing an acre of corn in the upper Midwest were going to be in the range of $450 per acre for 2009. Add to this as much as $300 per acre in cash rent payments, and even with a 200 bu/a yield you have costs of $3.75/bu.
In the past few years, under the previous US Government Farm program, cash costs to grow corn were often more than the cash market. Government payments made up the difference via a variety of programs. The net result was livestock producers could purchase feed grains for less than the cost of production.
The current Farm program makes this scenario less likely, as the ‘target’ prices are nowhere near the current costs of production. With the current cash corn price very near the estimated cost of production, it appears that the new ‘norm’ for feed grain prices for swine production will be in the range of $3.50-$4.50 per bu. The only thing that will change this is a bursting of the ‘ethanol’ bubble that may result in deflation in rural communities.
While those of us buying feed grains for livestock production recall fondly the days of $1.80/bu corn, I think we can all agree that a return to that price level won’t happen. What we also don’t want to occur is a return of the farm crisis of the 80’s that devastated so many rural communities. As the US and world economic markets struggle with the current crisis, this becomes a distinct possibility.