It's twice as likely corn prices will decrease than increase in the coming year, according to Ohio State University agricultural economist Matt Roberts. And he wouldn't be surprised to see corn sell for $4-$4.50 per bushel by harvest time this fall.
"There's a 1-in-3 chance of corn prices going up during the coming year and a 2-in-3 chance they will go down," Roberts said Tuesday during an Agricultural Policy and Outlook meeting.
About 75 people attended the meeting in Bellevue hosted by First National Bank.
Roberts said the factors that created growth and high prices during the past five years have changed.
"We're not in that this year," he said. "What we are in is a short-crop market.
"In the last five years, we've seen higher prices because of the demand-driven market," he said. "Where we're going is not where we've been."
Although global demand in general was increasing, he said the main two drivers of high corn prices have been Chinese imports and ethanol production.
While the federal government's renewable fuels mandate will keep ethanol in production, Roberts said a federal subsidy expired Dec. 31 and he doesn't foresee it being renewed. The result is a glut of ethanol that is not profitable to produce.
"Demand's very weak right now," he said. "I don't think the industry disappears but I look for some bankruptcies to restructure debt. From a marketing perspective I'd keep that in the back of my head."
Roberts said he see less of a price decrease in soybeans.
"And I have no idea what's going on in soft red winter wheat," he said. "There's no good story for why we have the flat prices we do."
Overshadowing everything is the Euopean economy, he said.
"The realty is everything goes sideways if the European debt crisis worsens," he said. "None of this really matters."
Carl Zulauf, another ag economist in OSU's Department of Agricultural, Environmental and Development Economics, reviewed farm program and the new farm bill.
He recommended farmers consider the ACRE program this year instead of staying with the traditional target price system.
"It's really not good management if you haven't thought about going into the ACRE program," he said. "I would encourage you do that and consider the price differentials. My advice to you is to think about this."
Although most aspects of the 2012 Farm Bill still are undergoing debate and likely will continue to be debated for much of the year, Zulauf said federal debt and other concerns probably will create some changes.
"Major might be too strong a word, but this is not an insignificant change in the safety net," he said.
He said it's likely the direct payment system of price supports will be eliminated, saving $5 billion.
"One of the hardest things to defend right now is why farmers are getting payments when crop prices are high," he said.
"What (the lack of) direct payments will impact for farmers is cash flow," he said. "You will have to borrow more money and that 's the real impact."
Other farm bill topics under scrutiny are levels of conservation spending, farm insurance subsidies and changes to other revenue programs.
"One of the themes that will come out of this farm bill is an attempt to lower prices, and that might not be a bad thing," Zulauf daid. "At these (current) prices you are encouraging other people to produce and you are discouraging the building of demand. Seven-dollar corn is not good for anyone, including corn producers."
Zulauf said he doesn't see a renewal of the biofuels subsidy that expired Dec. 31 because of the diverse group of people who oppose it.
"It isn't clear you need the subsidy when you have a mandate to begin with," he said, referring to the use of biofuels as required by federal law.
"One of the things that bears watching in the next 12 months or so is do we see a slowdown in ethanol production because of the loss of the subsidy," he said.
Zulauf also said he doesn't expect the price of oil imports to decrease.
"You better get ready for $4 (per gallon) gasoline this spring and there are people talking about $5 gasoline," he said.
Barry Ward, leader in production business management at Ohio State, recommended farmers look at on-farm fertilizer storage as an alternative to buying crop inputs as they are needed.
"We can track those fertilizer prices and look for buying opportunities," he said. "And it can spread out fertilizer purchases."
Among his other ideas for cost savings were
Ward said tenants should discuss flexible cash leases with landowners to help spread the wealth and the risk associated with high cash rents.
For examples and information on flexible cash rent leases, he suggested the websites www.extension.iastate.edu/agdm/wholefarm/html/c2-22.html and aglease101.org.