Hart lauds strong '21, warns of price dip, at outlook luncheon

     For many Iowa farmers, 2021 was a year as surprising as it was successful.

     Chad Hart, associate professor of economics at Iowa State University and crop markets specialist, told an audience of 105 that he was as surprised as anyone.

     Despite the effects of COVID-19, and a drought that affected much of the state, Hart said the nation produced “the biggest corn crop we’ve ever seen.

     “What we have seen over the past 18 months, is while COVID messed up a lot of things, it actually really helped us in the ag department, believe it or not,” Hart said.

     “We saw prices initially dip pretty strongly, but we recovered quickly. And that put us on pace to set some price levels that we haven’t seen in roughly a decade.”

     Superior genetics have created plants that still produce even in severe weather conditions, such as the summer’s drought.

     “The four most popular words I heard this year were ‘better than I expected,’ ” Hart said.

     Hart spoke at the Ag Economic Outlook Luncheon Dec. 7 at the Youth Development Center. He has visited Monticello several times for the event, which is sponsored by Ohnward Bank & Trust and attended by mostly farmers. Hart offers his interpretations of the USDA’s forecasts for planting, yields, prices and other market factors – often with a touch of humor mixed in.

     Hart warned that while the markets treated farmers well in the past 18 months, it may not last.

     “Life’s good right now,” he said. “But what do I do to you when life is good?”

     Later, he added: “My job is to help balance you out. I’m here to remind you that when things are bad, they are going to get better. But when things are good, I’m here to tell you to prepare for when things are not so hot.”

     This year’s high prices were driven, Hart said, largely by international demand.

     “We’ve never shipped out so much before,” he said. “We actually saw record demand when it comes to our corn and soybean prices, in the midst of COVID.”

     He added that there are concerns about the future of exports, particularly with China, which is a big customer of U.S. exports in many ag categories.

     A trade deal negotiated with China is nearing the end of Phase I, and discussions on Phase II have yet to take place. That, and competition from other nations for China’s market, could affect U.S. markets.

     USDA projections call for 2022, across the board, to start out strong but dip in prices approaching mid-year.

     “USDA expects another bumper crop next year,” Hart said. “Therefore, I need a lot of demand out there. This, to me, is the challenge we face as we look forward to 2022.

     “There is a lot of supply, and we’ve had a lot of demand. If you overproduce for that demand, prices will slide.”

     The livestock industry could also see prices fall next year, Hart said.

     “The meat industry, I would argue, is already preparing for that slide,” he said. “The beef industry is contracting a little bit, and the pork industry is contracting a little bit.

     “There’s a hole (dip in prices), as I look out into 2022, that’s got this industry pulling back. Where we’re at right now is pretty good, but you can see the market is already preparing itself for working its way back down.”

     Hart said thanks to strong prices in recent months, along with subsidies provided as a result of COVID-19, farmers have more cash than usual.

     “All that cash is looking for a home,” he said. “We’re taking the profits we’ve got right now, and we’re reinvesting.

     “Whenever we get a profit, what do we do? We reinvest it, and that means we bid up our price. We cycle through periods of profitability, followed by some significant losses for a while.

     “And it will pop up, like for air. We swallow in a few more profits, get another breath, and dive back down again.”

     Hart said a long-term thing to watch is the development of renewable diesel. If it takes hold, it could have a strong effect on soybean demand.

     “It is something to watch,” Hart said. “You’re looking at the potential development of a new source of demand. This could change the game, but it hasn’t changed it yet.”

     Ultimately, Hart said that even if crop prices dip next year, they could still be high, based on USDA projections.

     “Corn in 2021 is still running very strong,” he said. “Corn in 2022 is factoring it back a little bit. But even in 2023, they’re still talking about nearly a $5 (per bushel) corn price.

     “Soybeans could have a little bit more of a decline, but I’m going to argue the same thing. Anytime I can talk about beans in double digits (dollars per bushel), that’s not a bad day.

     “Things are looking pretty good right now.”