Lower corn and soybean prices are likely to diminish farm incomes this year, the Kansas City Federal Reserve said Thursday, with lessened demand from ethanol plants a contributor.
The branch of the nation's central bank for the area including Nebraska said in the Main Street Agricultural and Rural analysis that an examination of trading activity on corn futures markets indicates that 2014 commodity prices will probably fall short of those seen in 2013.
“High probability of lower corn prices in 2014 is leading to prospects of lower incomes for U.S. corn producers,” the report says. “The variability of expected harvest prices mirrors that of a decade ago as diminishing ethanol growth has curbed demand potential.”
Corn and soybean prices matter a lot in the Midlands, with Iowa the top producer and Nebraska the third-largest, behind Illinois.
Prices for corn — a staple in food processing, animal feed, ethanol production and myriad other uses — fell from $7.50 a bushel in March 2013 to just over $4 a bushel in December, the period analyzed by the K.C. Fed report. Corn futures have been hovering around $4.25 a bushel in recent days.
The decline in soybean prices has been more modest, falling from nearly $15 a bushel in March 2013 to about $13 a bushel in December.
“Although future incomes will also depend on how much production costs adjust alongside lower crop prices, the USDA has projected that net returns per acre of corn production could fall by 38 percent from 2013 to 2014,” reads the K.C. Fed report by Omaha Branch Executive Nathan Kauffman and Associate Economist Maria Akers.
Demand from ethanol producers facing a cut in the national mandate for blending the fuel with gasoline is expected to slow demand growth, the report said.
From 2005 to 2010, the authors wrote, an additional 3.2 billion bushels of corn were consumed in the production of ethanol, an increase of 245 percent. At the same time, the share of U.S. corn used to produce ethanol surged from 12 percent in 2005 to 35 percent in 2010.
Those rates of change are certain to decelerate, the report said.
“Ethanol blended for use in transportation fuel was essentially at, or very near, the maximum level attainable” last year, the authors wrote.
Last year, the Environmental Protection Agency agreed, proposing rules requiring refiners to blend 15.2 billion gallons of ethanol into gasoline in 2014, down from 16.5 billion gallons in 2014, and below the 18.2 billion gallons envisioned in 2007 federal renewable-fuels legislation. The EPA proposal is still being debated, subject to a public comment period.