Corn prices have skyrocketed since last fall. “They are knocking on the door at $5.35 per bushel,” said ag economist Dan Basse, president of AgResource Co. in Chicago, during a Jan. 14 Dairy Signal webinar sponsored by Professional Dairy Producers.
Basse believes corn prices will climb to $5.70 to $6 by spring. “This is really changing margins,” he said.
“If you are a dairy farmer, are blessed and have plenty of corn silage and corn and you bought some soybean meal, then you are in a good position,” Basse said. “But there are a lot of farmers who are struggling or are going to be struggling.”
Why are corn and soybean prices soaring?
“We have the lowest stocks of soybeans ever and nearly a record low stock for corn,” Basse explained. “These are prices we haven’t seen since 2013.”
Basse thinks prices for soybean meal will climb to between $500 and $540 per ton this year.BE READY: “I want everyone in the dairy industry and livestock producers to be aware of the upside risks in the feed markets, because there are such low stockpiles to lean on right now,” ag economist Dan Basse says.
He said corn and soybeans will experience record exports this year.
“U.S. corn and soybean exports are rising sharply, with China increasing their purchase of U.S. corn and soybeans in 2021,” Basse said. “China bought $27 billion of U.S. goods in 2020, which is below the $36 billion they promised to buy. But they had a pandemic, and they get a free pass for 2020.
“They have a $43.5 billion purchase pledge for U.S. ag products in 2021. This is a total that should just pop out. This is going to include some dairy but a lot of corn and grains and things that are going to keep the ag markets extremely dynamic for at least the next 12 months.”
Basse is expecting to see high corn prices for the next 18 to 24 months. “The corn market is not going back to $3.50 a bushel anytime soon,” he said. “If you are a crop producer, you are loving life right now.” He thinks corn will hit $6 by spring.
“Give me a weather problem this summer somewhere in the Midwest or Plains, and I will be talking about $7 or $8 corn again,” Basse cautioned. “We are looking at $15 to $16 soybeans. Give me a weather problem, and I can talk about $20 soybeans. I want everyone in the dairy industry and livestock producers to be aware of the upside risks in the feed markets, because there are such low stockpiles to lean on right now.”
Since last summer, corn prices have risen $2 per bushel and soybean meal has jumped $150 per ton, Basse noted. “These are tremendous rallies, and the impact on margin in dairy and livestock will be high if you’re buying it in the marketplace.”
Corn likely will average $5.50 in 2021 and $5 in 2022, “and that doesn’t include weather problems,” Basse said. “This is the most bullish soybean market I have ever seen.” He predicts soybeans will average $14 in 2021 and $13.35 in 2022.
Basse said under the Biden administration, biofuel demand will boost U.S. corn ethanol use by 250 million to 400 million bushels annually. “This will provide another demand jolt for the corn market.”
On Jan. 4, USDA announced the fifth round of Farmers to Families Food Box purchases. USDA will purchase up to $1.5 billion worth of food for delivery through the end of April.
“In addition to other food, these donations include fluid milk and cheese, and they are trying to include butter,” Basse said. “This will probably be the last round of food boxes. The market impact will likely fade by mid-March.”
Basse said he is concerned about U.S. dairy farmers producing too much milk. He is predicting Class III milk price rallies between $19 and $19.50 and lows at $14.50.
“Dairy markets will be good for a while, but we will see $15 milk by spring, which will be hurtful to dairy farmers who have to buy feed,” Basse said. “I worry about weakening milk prices in summer due to the oversupply of milk.”
He believes the first quarter of the year will be strong with food boxes and restaurants gearing up to reopen. Basse said restaurant traffic spiked during the holidays, primarily due to an increased amount of takeout food.
“My food-service clients will be much more aggressive buyers of meat and dairy in May and June,” he said. “The restaurants will open south to north. Restaurants can serve outside much earlier in the south than they can in Madison, Milwaukee or Chicago.”
Next fall, when the U.S. begins to return to normal, he said consumer spending likely will do the same.
“During the past year, when consumers got a dollar, we put it in our pockets, we put it in the mattress or we put it in the bank,” he said. “As a result, the American consumer has assembled $1.5 trillion of additional capacity to spend. I don’t know if that will be spent on clothes to go back to the office or food or real estate, but we do know when confidence returns, we will start to see the engines revving up pretty quickly on the consumer spending side, and this should be good for agriculture and commodity prices in general.”
For more information or to listen to Basse’s Dairy Signal presentation or other episodes, go to pdpw.org.