Billy Gaw made an early morning inspection of his two-month-old corn crop. His loyal hound, A.J., trotted close by. The knee-high stalks, a brilliant green, showed strength and promise for October’s harvest. And, if price trends over the past three years were to continue, Gaw and his fellow corn farmers would expect quite a return on their investments in the booming commodity. He is skeptical, however, and likens predicting corn prices to predicting the stock market.
Farmers nationwide saw reduced corn yields in 2010 and 2011 as a result of unusually hot summers. With the demand for corn staying strong, the price per bushel shot up nationally from $3.75 in 2009 to $6.01 in 2011, according to the United States Department of Agriculture. The profit potential has signaled farmers to increase their corn production, planting the most this year since 1937.
Pat Westhoff, director of the Food and Policy Research Institute (FAPRI) at the University of Missouri, predicted in the Columbia Daily Tribune earlier this year that U.S. corn production could top 14 billion bushels in 2012, one billion bushels above the previous record.
Westhoff said if farmers produce more corn than consumers demand, the likely result would be a sharp decline of corn prices by the end of 2012.
Beside his newly constructed barn, Gaw paused to rest and check corn market futures on his iPhone. Just as Westhoff predicted, corn was expected to decrease this year to $4.84.
Unlike many of the larger corn operations in Missouri and nationwide, Gaw trusted his instincts and opted not to increase his corn production. He said the key to sustaining a commodities operation is diversification, which is why he produced alfalfa crop at the same quantity as years previous.
“It’s the only product where you can set your own prices,” he said.
For Gaw, the corn market is still too volatile to invest completely, especially with this year’s prices expected to drop. Last year, he sold his harvest at $6 per bushel, while approximately $2.08 of planting, spraying and fertilizing costs go into each bushel. At the expected $4.84 price this year, increasing corn production would not cover his other expenses if he were to forego the more stable hay and soybean production.
Missouri farmland prices are above $4,000 per acre in some areas, seven times the 1986 price. According to Ron Plain, a professor of agriculture at MU, farmland prices are appearing to enter an economic bubble that will likely burst as it did twice in the 20th Century, first in the 1920s and then in the late 1970s. The primary reason for the land boom, he said, is higher crop prices followed by low mortgage rates.
Plain said the increased agricultural exportation is behind higher corn prices. China is currently the world’s largest importer of U.S. agriculture, and that is expected to continue as its median incomes increase. If China’s and other developing countries’ economies continue to improve, global food demand is expected to double by 2050.
Although, the demand for corn is growing largely due to increasing food demand worldwide, it’s also because of an increase in ethanol production. The U.S. Department of Agriculture predicted last year that the amount of corn used in producing biofuels was expected to exceed the amount used for animal feed for the first time in history. About 25 percent of Missouri’s corn went into ethanol in 2010. This year, that is expected to reach 40 percent.
Gaw’s 2012 harvest may become livestock feed, sold to an ethanol plant or shipped downriver on a barge to be dispersed worldwide.