FM: When we spoke in the second half of 2006 you said that corn was about to set a low that would last our lifetime. So far you have been spot on. Any change in that prediction?
SD: I would raise the price now. I don’t see corn getting under $4 for a long, long time. There is so much demand in the world. The cost of production right now is around $5, so if you get under that you will start to reduce acres. I just can’t see corn under $4. And over the next 12 months, I don’t see it under $4.50-$5, I don’t think we will spend a lot of time under $5, but we may if we have a big crop this year. I think $4 is a low that I don’t think will be taken out for a long time, if ever.
FM: You no longer are concentrating on money flows. What are the main factors affecting the corn, wheat and soybean markets now?
SD: If you had to put it in one word, it would be ‘China.’ They have an insatiable demand. They have moved to a capitalistic system and people are learning that they can work where they want to work, they can go to school if they want to, they can save their money, they can have a TV, they can have a refrigerator, they can have a cell phone. Things that 20 years ago where only for the rich. The city people are having these things and enjoying them. They are finding out that the capitalistic system is an okay thing. And with that, the diet improves too. They have a huge hog population. Last year they had 40 million tons of corn they pulled out of reserve to hold down domestic prices and set aside the demand. They had a bumper crop, but they still needed to pull down their reserves. They still have not filled that reserve; they are looking at the U.S. to fill [it]. They are hoping that the U.S. has a big crop this year and the price will be cheap enough this fall to refill their reserve with 40 million tons of corn. They are just a demand factor out there that we never have had before. Any time you analyze any market the first question is, “Where does China fit in to all this?’
FM: Any other new factors besides China?
SD: That is by far the biggest. This time of year the key factor that trumps just about everything, is weather. [Couple that with] China [and you have] the two [main] factors for price analysis right now. We know that if any grain gets cheap, China is always there to buy it. They are pretty disciplined--buy grain when it is on a break for whatever reason. The one thing that would put them in a panic is if we would have a weather problem this year and the market took off, and they did not have the coverage that they need for that 40 million bushels of corn. But they have money.
FM: Give us your medium- and long-term outlook on corn, wheat and soybeans.
SD: Weather is a big issue and our longer-term weather people are estimating a corn yield this year of 160-165 [bushels per acre], which would be a very good crop but not a bin buster. On beans, I would guess in the 43.5-44 [bushels per acre] area, which would be above trendline yield. With those numbers, I would say the market is fairly well-priced today. It probably would put corn down a little, but I don’t think it would stay there. I told you that I don’t think corn will go under $4; I don’t think beans over the next year will be able to go under $13. If South America can rebound and have a good crop next year, there would be more downside risk at that time. But between now and end of year, I don’t see a lot of downside no matter how good the crop is, and if you have a weather problem, it is hard to say what number you could get to on the topside. On balance, it is a good time to be a farmer. Prices are going to be relatively good for the foreseeable future. Wheat is a follower of corn. We do have ample stocks; we do have a good crop coming on. It probably can get cheaper than corn during harvest coming up, but for the rest of this year corn and wheat are going to stay attached to each other.