U.S. new-crop soybean and corn prices are expected to drop as much as $1-$2 per bushel below production costs in the coming months as near-record domestic output adds to bulging world supplies, industry officials said on Thursday.
Mounting losses could prompt the country's farmers to try and maximize their yields in order to meet their costs, the officials added, which in turn would further drag on benchmark U.S. futures that are currently mired near multi-month lows.
Chicago new-crop soybean futures will likely drop below $8 a bushel and corn to $3 a bushel, the officials said on the sidelines of an industry meet in Siem Reap. It costs $8-$9 to produce one bushel of soybeans and $4-$5 for a bushel of corn.
"We are going to see a lot of red ink out there," said Jim Call, former chairman of United Soybean Board who farms soybeans in Minnesota. But farmers have no choice but to continue producing more, he added. As much as 97 percent of the farms in the United States are family owned.
"Futures are under pressure but we are also seeing the basis falling," said Call. In fact, cash prices for new-crop beans in some areas are already 65 cents below Chicago November futures contract, he added.
Soybean futures hit their lowest since 2009 at $8.55 a bushel this week as rains boosted U.S. output prospects. Higher South American supplies have also dented prices.
Corn, down 5 percent so far this year, is trading at $3.76 per bushel, just 30 cents above its lowest since October.
"We had a record harvest last year and looking at near-record production this year which is after two years of all-time high production in South America," said John Baize, president of consultancy John C. Baize & Associates in Washington.
The U.S. Department of Agriculture has pegged domestic corn and soybean harvests above expectations this year. It forecast corn production at a 13.686 billion bushels, with average yield projected at 168.8 bushels per acre.
The 2015-16 soybean harvest was pegged at 3.916 billion bushels based on an average yield of 46.9 bushels per acre.
"Last year we produced 60 bushels of soybeans an acre and it cost us $10.12 a bushel and going by current prices we will need the yields to go up to 73 bushels per acre," said Jim Miller, vice chairman of the U.S. Soybean Export Council who farms corn and soybeans in Nebraska. "We are not going to get that."