Mother Nature plays and the price of 2012 commodities
January 4, 2012
Those who attended a recent commodities price forecast presented by Stephen Koontz broke out into laughter when the Colorado State University professor and economist announced that his prediction for next July’s corn prices is somewhere between $4 and $8 per bushel.
“I wish it were funny,” Koontz said in response, doing his best to hold back a smile of his own. “It’s scary, but that’s just how unpredictable things are when you factor in the weather.”
That explained why Koontz kicked off his presentation with a weather forecast – a point he made later on in his presentation.
Despite weather being unpredictable and how large of an impact Mother Nature plays on the price of commodities, Koontz, who’s been predicting commodity prices for 20 years, still went forth and threw out his best predictions as to where four key commodities in the agriculture industry will be priced at next summer – if weather conditions aren’t too extreme one way or the other.
He told the crowd at the Eaton Country Club – made up of farmers, ranchers, ag lenders and others involved in the ag industry and who are members of Greeley T-Bone Club – that he expects corn prices to be around $5.50 per bushel in July, wheat to be at about $6 per bushel, cattle prices to be around $121 per hundredweight, and estimates milk to be priced at $21 per hundredweight.
Koontz’s prediction for corn would be a drop compared with last summer, when corn prices hovered above $6. It would also be a drop for wheat, after it stood between $8 and $9 last summer. Cattle prices were at about $121 in July, so there would be no change in that category if Koontz’s predictions hold true. Milk prices were down in the $18-$19 range last summer.
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Returning to weather discussions, Koontz explained that corn prices could be as high as $8 per bushel if conditions don’t cooperate with producers, and supply is consequently low.
As Koontz said in his presentation, weather forecasters are predicting La Nina conditions for 2012 – which was the case in 2011. However, they’re saying next year’s La Nina conditions won’t be as intense.
To put it simply, he explained, the historic droughts across the Southern Plains of the U.S. and heavy snowfall in the mountains that led to flooding in other regions of the country – both of which plagued many farmers last year – are weather patterns that will likely continue in 2012, but not in the extreme manner that was seen in 2011.
“But who really knows for sure?” Koontz asked rhetorically.
In further discussing corn, Koontz said he doesn’t anticipate cuts to federal ethanol subsidies to play much of a part in the future of corn prices. The tax credit isn’t causing demand for corn-based ethanol, he explained. The other alternative for gasoline blending is using methyl tert-butyl ether (MTBE), an additive that has seen its use decline in the U.S. due to environmental and health concerns.
Koontz said that once cellulosic biofuels come onboard – making gasoline blending less dependant on corn – then corn prices could go back down. But he said he doesn’t see that happening anytime soon.
Further into his presentation, Koontz said he doesn’t anticipate wheat prices to reach last year’s higher levels because of the current enormous supply of the crop.
In estimating that cattle prices will be at about $121 per hundredweight next summer, Koontz said that price will be as low as cattle prices will be for a long time.
A lot of the cattle sold early this year by drought-stricken ranchers who couldn’t find feed for their animals will still be in feedlots through much of this year, Koontz explained. However, cattle will be in short supply soon after that, as the effects of the herd-downsizing trend will begin to show up more and more, driving prices up as cattle supplies become limited.
Koontz also explained to the crowd that more and more factors are now playing a part in cattle and milk prices – a trend that started back in about 2006, when large amounts of corn started being used for ethanol production, and has continued recently as other countries have become bigger consumers of those American products.
“Domestic trends are now having less and less of an impact in those prices,” Koontz said. “That’s just something we have to get used to.”
Commodity prices for July, according to Stephen Koontz, a professor and economist at Colorado State University.
• Corn $5.50 per bushel
• Wheat $6.00 per bushel
• Cattle $121 per hundredweight
• Milk $21 per hundredweight