Brighter outlook: Corn and oil prices to head south in 2004
Good news! Unlike the gloom and doom this time last year, both the corn and oil markets have softened up and your prices are coming down.
After last year’s disastrous corn crop, prices soared. Worse than the price, the uncertainty of product availability was a tightrope for many. The market was so tight that contracts were being strictly adhered to and distribution points were fiercely guarded. But the oil market was softer and oil prices were lower than the year before, which helped offset the high price of corn. The good news for 2014 is that both of these commodities are at weakened positions from a year ago and the price drops are significant, especially for corn.
The corn crop yields this summer came in higher than expected and have eliminated the fear of another continued shortage. Price drops are in the double digits and contracts once again have a sense of urgency to simply lock in good prices. Corn will not see the lower prices that we enjoyed four or five years ago because the ethanol program seems here to stay. This ensures a tighter crop for edible corn, and less still for the actual popcorn market.
But this year is a good example of production being able to meet demand, particularly when the U.S., South American and Chinese markets are all producing at average or above-average yields. Last year was just the perfect storm, when all of these markets struggled. The U.S. crop is particularly strong and is keeping prices even below production costs right now, causing farmers to resist harvesting too quickly to encourage prices to rise. It’s a great time to book contracts.
According to Bloomberg writer Jeff Wilson, “Corn futures fell to a three-year low and soybeans dropped the most this month on signs of supply gains in the U.S., the world’s biggest producer. Beneficial rain in September boosted corn yields by allowing plants to mature late in the season and helped soy plants produce bigger beans.”
“Yields are as much as 20 bushels an acre higher than farmers expected for the grain and 10 bushels for the oilseed,” according to MaxYield Cooperative in West Bend, Iowa. “Farmers are harvesting yields that are consistently bigger to much bigger than they were planning,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said in a telephone interview with Wilson. “We have to rebuild demand in the world markets with lower prices to sell the excess.”
2014 oil prices will be even lower than in 2013 and this is a great time to book oil contracts, and book them for much longer periods than you did last year. Six months to a year is not unreasonable; oil prices are so low they can really only go up. Please look at the NASDAQ chart for oil prices over the last year and remember, oil was at a lowered starting point, unlike corn. Why is there such a downward pressure on oil? There are more oils on the market, subsidies are down, weather has been great, and tropical oils are back on the table now that coconut oil is no longer considered devil grease.
Both commodities are experiencing more acreage and better yields this year due to hybrids on both products, and Mother Nature. That is just the reality of commodity crops and this has been a good season for both. How does this translate to the bottom line? I can’t be certain, but my suspicion is that we will not be lowering popcorn prices for the consumer…
All kidding aside, we will be putting more profit to the bottom line and this will help with concession profit for 2014. We don’t have much room to raise prices when our costs go sky-high and last year’s corn is a perfect example. We have to absorb most of the cost increase. So when we have a banner year ahead of us, we can catch up a bit. Hopefully we will have a box office that will deliver consumers to the theatre next year, but that’s a separate subject to explore.
As the concession stand continues to evolve and change, we need some of our base products to support our per-cap generation, and there is no question that popcorn is our foundation. Corn and oil pricing are critical cost factors that must be closely monitored, managed and hedged on a regular basis. For 2014, you are going to get a bit of a break from so much uncertainty and be able to count on good pricing and focus some of your energy on those other items that can increase per-capita sales.
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