Corn is about one-half the price it was a year ago, a movement that will dramatically impact farmers' bottom lines.
The cash price for corn at North Central Farmers Elevator in Ipswich on Monday was $3.71 per bushel. Last year at this time, it was $6.81 per bushel.
The drop in prices was expected. Last year, much of the Corn Belt experienced a drought that drastically reduced supply. This year, most of the corn-producing areas are recording above-average yields, said Craig Haugaard, grain marketing manager at North Central Farmers Elevator in Ipswich. Supply is increasing, and the corn futures price is reflecting that, he said.
Last year, Aberdeen and the surrounding area escaped the drought. It was a rare year of high yields and high prices. Now, it is different. Yield appears to be about average across the region, and prices have dropped.
Some farmers may be able to collect insurance if they meet the guidelines on their multiperil crop insurance policy.
It depends on several factors, said Roland Pond, a crop insurance agent for Insurance Plus. The good news is that insurance price per bushel for corn, which is based on last year's corn price, is $5.65, he said.
Whether a farmer has a claim will depend on the historical average yield for a particular parcel of land, the yield this year and the percentage of revenue guarantee, he said.
Farmers that selected lower insurance coverage, such as 50 percent of revenue, will have less of a chance to make a claim compared to those who selected high insurance coverage, such as 85 percent revenue protection.
Most farmers typically select 70 to 75 percent revenue coverage, Pond said.
Farmers who had high yields will have less of a chance to collect insurance because that boosts revenue, he said.
"Any farmer with a question about a claim should contact their insurance agent," he said.
Haugaard said a strong nationwide corn crop will have an impact on prices for at least a year. There will be plenty of supply going into spring 2014 that will keep prices down.
"The forecast is that we will have 2 billion to 2.5 billion bushels of corn as carryover into 2014," Haugaard said. "That compares to about 700 million bushels of corn we had to start this year."
There is potential for lower corn prices to spur exports.
"They say the best cure for low prices is low prices," Haugaard said. "If corn gets cheap enough, it will capture more of the export market."
Ethanol producers benefit
Lower corn prices are not bad for everyone. Ethanol plants and livestock producers welcome a moderation in corn prices.
Thomas Hitchcock, CEO of the Redfield Energy ethanol plant, said the drop in corn prices offers more opportunity for Redfield Energy to make money.
"It is not only the corn price that determines profitability, but it is the margin between the corn price and ethanol price," he said. "We have made money on high-priced corn if the price for ethanol was high enough. That said, with the corn price low, our margins are very good."
At closing time Monday, Redfield Energy was paying $3.59 a bushel for corn. The wholesale price of ethanol on Monday was $1.84 a gallon. A bushel of corn makes 2.8 gallons of ethanol. That means a $3.59 bushel of corn can be transformed into $5.15 worth of ethanol — a margin of plus $1.56.
Ethanol plants also make money on co-products, such as distillers grain and corn oil.
The increase in profitability in ethanol plants is one way farmers can make up for low corn prices. Almost all ethanol plants are owned by their farmer members who invested money to build the plants years ago. When their corn crop revenue is down, potentially their dividend revenue from ethanol plants is up. Farmers who do not have shares in an ethanol plant do not have that advantage.
The profitability of ethanol plants now is in contrast to last year at this time.
Last October, Redfield Energy was buying corn for $6.87 per bushel. While the wholesale ethanol was up to $2.38 per gallon, it was not enough to cover the cost of corn. The margin was minus 21 cents. What allowed Redfield Energy to cash flow its plant last year was the added revenue from co-products, Hitchcock said.
Livestock producers who use corn as a feed source also welcome lower corn prices. The cattle market has shown optimism in recent months with calf prices rising, according to Beef Magazine.
While lower corn prices benefit some sectors of the agricultural industry, overall, they are going to have a negative impact on the average farmer in the area.
"Not only is it tough this year, but it will make it tougher next year," Haugaard said. "When they go to set the crop insurance per bushel price for next year, it is going to be a lot lower."
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