by Nathan S. Kauffman and Maria Akers - The Main Street Economist, Federal Reserve Bank of Kansas City
A high probability of lower corn prices in 2014 is leading to prospects of lower incomes for U.S. corn producers. Despite near-record farm income in 2013, markets appear more convinced that corn prices are unlikely to match the levels of the past few years. The variability of expected harvest prices mirrors that of a decade ago as diminishing ethanol growth has curbed demand potential.
Though crop producers often characterize price uncertainty as a nuisance to be managed through various risk management strategies, less uncertainty is not automatically better for producers. Expected future corn prices are significantly less volatile now than in recent years. However, the decreased uncertainty is accompanied by prospects of considerably lower prices.