U.S. Corn Prices Expected to Decline Below US$4

According to the recent USDA World Agriculture Outlook, U.S. corn prices are expected to average US$3.90 per bushel in 2014-15. This is a decline of 41% from the highs of 2012-13 after several years of increases. Prices are also expected to average closer to US$3.50 per bushel over the next five years.

If these estimates are accurate, this will put significant pressure on agriculture commodity prices - and profit margins - over the next few years. However, this is quite a different and far more bearish outlook than what futures markets suggest. Looking at December contracts for corn from 2014 to 2017, they suggest an average price of around US$4.50. Quite a difference!

The World Agriculture Outlook is the USDA’s annual analysis that provides short and long term forecasts of agricultural commodity prices and insight into overall farm conditions in the U.S. The most recent Outlook - estimating lower commodity prices and higher input prices - has created major buzz throughout the industry. Given the importance of U.S. agriculture in world markets, the Outlook often impacts the behavior of producers and markets worldwide.

These long-term projections are useful to test various strategies when it comes to expansion, diversification, equipment purchases, etc. They aren’t to be used at face value, but rather to investigate if a decision can be profitable under various market outcomes.

I learned of this at the USDA Outlook forum last week in Washington. I invite you to join FCC’s twitter account at @FCCagriculture where you can get up-to-the minute commentary from the Ag Economist team… and watch for more outlook commentary right here.

Craig Klemmer, Portfolio Analyst and Agricultural Economist