Spring 2017 Logan County
Farm Outlook Magazine

The conundrum of corn
By Jim Youngquist

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[March 25, 2017]  Human beings seem to be happiest and healthiest when they maintain the illusion that they are somewhat in control of things. The illusion of control allows people to not feel powerless in the face of opposition, not feel as though they are victims of the things going on around them, and not feel helpless when things arenít quite going their way. A little bit of control in peopleís lives seems to be a good thing.

Most businesses allow the operator of that business to exert a modicum of control. Business people can set their own prices, maintain the level of their inventory, and advertise for new customers. In a sense, with careful planning, most business people can control the profitability of their businesses, in some measure making them happy and healthy (and sometimes wealthy).

But it is not so for corn farmers in Central Illinois. Even though Central Illinois farmers have the best soil in the whole United States, a climate that for the most part is cooperative with raising corn, and the best GMO corn hybrids ever invented by mankind, they cannot control their crop, alter the weather, set their prices, choose their markets, outflank their competitors, control the price of land. Corn farmers in Central Illinois have very little power or control (and yet still seem quite healthy and happy).

Perhaps the most frustrating thing from the list of items beyond control is the issue of prices. Corn farmers have been waiting for sustainable prices since 2013 when the market wandered south of $4.00 and has continued to decline.

Prices are controlled by market forces, not set by the individual farmer. The farmer must accept the price the market offers, or take his chances to enhance his price by feeding his corn to his own livestock (however, livestock prices are also controlled by market forces, not set by the seller). Also, some producers enhance their profits by growing alternative corn crops such as non-GMO or organic.

Prices are largely set by five major players who buy, sell, process and export 90 percent of all the grain crops: Cargill, ADM, Bunge, Dreyfus and Glencore. Since 2013 these five companies have controlled the market in their own favor by maintaining the supply high and the demand too low to allow prices to move upward.

Many producers and analysts also say that the USDA keeps prices low for these major consumers by overestimating the size of the corn crop in their annual crop estimates. The $4.00 corn seems illusive. This is truly the conundrum (an unsolvable problem) of corn.

The play:

An individual corn farmer cannot do anything to directly influence prices. Because there is so much production, surplus yields cause prices to be low. If an individual farmer decides to raise less corn on purpose to play the market, some other farmer somewhere else in the world will decide to raise more corn. Farmers are victims of their own efforts, stuck in a catch-22. No single farmer can influence prices.


And farmers are so independent and competitive that they will never organize with other farmers to plan out their yields to cause the market to go up.

The only way that prices can go up precipitously is for there to be a bad year and at least a part of the producer market to suffer losses. However, those producers suffering loses might include those in Central Illinois.
 

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The Plan:

In 2006 the ethanol market was optimistically planning for the possibility of a tripling of the production of ethanol from 5 billion gallons to 15 billion gallons, supplying 10% ethanol for nearly every gallon of gasoline sold. Such an increase of ethanol production would have been good for the corn farmer in 2006, raising prices significantly since every bushel of corn raised in the U.S. would be needed to produce that much ethanol.

Since 2006 ethanol production has grown to 15B gallons, but corn yields have outpaced ethanol production and although ethanol production now accounts for over 50% of the corn crop, there is still a significant surplus of corn driving prices southward.

The Ploy:

In a bold move in 1972, the Soviet Union bought all the surplus grain in the U.S. market for $500 million through the Continental Grain Company in an attempt to manipulate prices, cause bedlam and shortages, and recoup their $500M through inside trading.

To contain the situation, the federal government under then President Richard Nixon kept the sale to the Soviet Union a state secret for three months, preventing the Soviet plan to recoup their $500M and succeeded in keeping the price of corn steady for consumers (although the price of wheat doubled and the price of soybeans tripled). Prices in 1973 returned to their earlier norms as though nothing had ever happened.

***

Although prices remain too low for sustainability of farmers in much of the nation, the yields possible today in Central Illinois because of the soil, the climate, and new GMO corn varieties keep Central Illinois corn producers afloat because their yields produce extra salable bushels. While farmers in other parts of the U.S. are going bankrupt, farmers in Central Illinois are surviving on their extraordinary yields, undefeated by this conundrum of corn.
 

Read all the articles in our new
Spring 2017 Logan County
Farm Outlook Magazine

Title
CLICK ON TITLES TO GO TO PAGES
Page
2016 featured record soybean yields and decreasing incomes 4
The conundrum of corn 7
The prospect of higher ag prices 11
Price increase for US feed forecast 14
A suspicious character in town:  Bacterial Leaf Streak 17
Why some central Illinois farmers are giving cover crops a try 20
John Fulton to retire after a productive career helping others 24
Weather...and panning for gold in the 2017 growing season 33
2016 County Crop Yields Released 40

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