April 30, 2018
PAY ATTENTION TO GRAIN PRICES DURING PLANTING SEASON
In many years, some of the best grain marketing opportunities occur during “planting season”, which is normally from late April until early June. Sometimes, planting delays, such as we have experienced early in the 2018 growing season, can lead to market price improvement, especially as it relates to data in the March 31st USDA Planting Intentions Report. The final South American harvest numbers and grain export prospects also can weigh heavily on grain market movements in the Spring of the year. Many times, these rallies in the grain markets can be short-lived, which is why farm operators need to be ready to make marketing decisions, even during planting season.
The Chicago Board of Trade (CBOT) May soybean futures had a closing price of $10.45 per bushel on April 27, which was near the highest nearby futures closing price during 2018. The current nearby CBOT soybean futures price is about $1.00 per bushel higher than the early January price. Cash prices at the soybean processing plants in Mankato have been near $10.00 per bushel on a few occasions in recent weeks, which is the first time at those price levels since July, 2016. Prices at local grain elevators also saw considerable improvement, with local cash prices in a range of $9.40-$9.75 per bushel across Southern Minnesota. The current strength in the soybean market has been a nice surprise, considering that the rather large USDA estimate for 2017-18 soybean ending stocks in recent USDA supply and demand reports.
CBOT nearby corn futures have basically been trading “steady” since late February of this year, closing at $3.89 per bushel on April 27, which was near the highest level in 2018. The recent nearby corn futures prices have been about $.30-.40 per bushel above the CBOT futures prices at the beginning of 2018, and slightly above prices in the Spring of 2017. Local cash corn prices in Southern Minnesota have generally been in the $3.30 to $3.45 per bushel range in recent weeks, with some locations reaching $3.50 per bushel by late April.
The trend for CBOT “new crop” prices have followed a similar trend to cash prices for both corn and soybeans. CBOT December corn futures have traded near or above $4.00 per bushel since late February, closing at $4.14 per bushel on April 27, which again is near the highest level in 2018. CBOT November soybean futures closed at $10.47 per bushel on April 27, which is near the highest level for “new crop” soybean futures since the Summer of 2016. Local corn prices for Fall delivery in Southern Minnesota have been in the $3.40-$3.60 per bushel range in recent weeks, with slightly higher price quotes for delivery early in 2019. Local soybean forward prices for Fall delivery have been in the $9.35 to $9.65 per bushel range in recent weeks, with slightly higher price offerings at the soybean processing plants in the region.
The local price “basis”, which is the difference the CBOT futures price and the local cash price, has remained quite wide for both corn and soybeans at most locations in the Upper Midwest. The local basis for corn prices has been $.45-$.65 per bushel at most locations across Sothern Minnesota and Northern Iowa, except at grain terminals, with even wider basis levels in Western Minnesota and the Dakota’s. Similarly, soybean basis levels in the same region have been at $.80-$.90 per bushel, and about $.50 per bushel at the soybean processing plants. It will be hard to achieve much basis improvement in the coming months, considering the large supply of U.S. corn and soybeans that has been projected for the 2017-18 marketing year. About the only scenario that could tighten the basis would be development of a fairly major U.S. drought during the 2018 growing season.
Farm operators need to pay attention to the current strength in grain market prices to market any “old crop” corn and soybeans that remain in storage, either on the farm or in commercial storage. This is the best cash soybean price opportunity that we have had since early July of 2016. Even though local corn prices are not as high as many farm operators would like to see, the current cash corn prices at many locations are at their highest level in nearly two years. The current cash corn prices near $3.40 per bushel are probably still below the 2017 “breakeven price” for many corn producers in the Midwest. However, producers that still have a large amount of unpriced 2017 corn in storage need to evaluate the current corn price offering against the risk of potential price declines for “old crop” corn in the coming months.
Another reason to pay attention to marketing the “old crop” corn and soybeans that are still in storage is that cash grain prices tend to decline as Summer progresses, especially in years with large U.S. grain supplies. About the only exception to this in the last two decades is when we have a major drought, or some other major event to cause a sudden rise in prices. According to grain marketing data from Iowa State University, local corn and soybean prices have increased or decreased about 50 percent of the time during May and June. However, during the months of July and August, the percentage of declining corn and soybean prices increases to 60-80 percent of the time, with an average decline of about 7-10 percent. Given the seasonal trend in the corn and soybean market, producers probably need to have a “calendar target”, as well as a “price target”, to sell the remaining 2017 corn and soybeans.
The Spring of the year is also a good time for producers to watch for market rallies to forward price some of their anticipated 2018 corn and soybean production. Unless there is a major drought or other national production issues, many times the highest price ever offered for a corn or soybean crop is in the Spring of the year that the crop is planted. Some farm operators will use a “hedging” grain marketing strategy, locking in a CBOT futures price for the grain sale now, with the hope that the local price basis between the CBOT price and local grain price improves by the time that the grain is delivered. Forward pricing a portion of the anticipated 2018 corn and soybean production at favorable prices can greatly reduce the overall financial risk for the year.
During Spring planting season many crop producers tend to put grain marketing decisions on the “back burner”; however, this may be a year to pay close attention to grain market changes during planting season. Both the corn and soybean markets appear to be offering some favorable pricing opportunities for any remaining 2017 corn and soybean inventory, as well as to begin pricing some of the anticipated 2018 production. There could be some possibility of further price enhancements this Summer for both the “old crop” grain and for the 2018 production, especially were to if drought conditions or other production issues develop in the U.S. However, there is also the possibility of fairly significant price declines in the coming months, given the rather large existing U.S. grain supplies, if the 2018 national crop prospects look favorable, or if further trade issues with China or NAFTA develop.
Note — For additional information contact Kent Thiesse, Farm Management Analyst and Senior
Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960);
E-mail — firstname.lastname@example.org)