June 3, 2019
PAY ATTENTION TO GRAIN MARKETING OPPORTUNITIES
Nationwide planting delays in the U.S. have resulted in some of the highest corn prices that have been recorded in several years, as well as a significant rise in soybean prices. As of May 26, only 58 percent of the corn and 29 percent of the soybeans in the U.S. were planted, which are among the lowest percentages ever for planted crop acres in late May. The rise in grain prices have been beneficial to farm operators with unpriced 2018 corn and soybeans still in storage; however, it has created a dilemma for farmers with uncertain planting and crop yields for 2019.
In many years, some of the best grain marketing opportunities occur during “planting season”, which is normally from late April until early June. Sometimes, Spring planting delays can lead to some brief enhancements in the grain markets; however, the delayed planting is usually not as extreme as we are seeing this year. The final South American harvest numbers and grain export prospects also can have an impact on grain market movements in the Spring of the year. In recent weeks, the U.S. planting delays and the potential impacts on final 2019 crop acreage, yields, and production have been the driving force in the grain markets. The big question now is: “how high will the corn and soybean prices go during this weather market rally?”
The Chicago Board of Trade (CBOT) nearby corn futures hit a low point during the second week of May, near $3.40 per bushel. However, the CBOT nearby corn futures have been on an upswing ever since, due to the extreme planting delays in the U.S. The July corn futures price closed at $4.36 per bushel on May 30, before declining slightly on the following day, which was the highest closing price for nearby CBOT corn futures since June of 2016. December corn futures prices, which correlate to harvest prices for the 2019 growing season, have also risen dramatically in the past three weeks. December futures closed at $3.72 per bushel on May 10 and increased to a closing price of $4.52 per bushel on May 30, again the highest price for December corn futures in several years.
Local corn prices in Southern Minnesota have also improved considerably in recent weeks. Cash corn prices were near $4.00 per bushel at some locations, and above $3.85 per bushel at most locations at the end of May. Local forward contract prices for Fall delivery of corn were about $.10 to $.15 above the cash price levels. There is wide variation in the “basis” level for corn across the Midwest, which is usually dictated by local corn demand and transportation costs and issues. Basis is the difference between the CBOT futures price and the corresponding local cash or forward contract price. The flooding and high water on the Mississippi River and other rivers has limited barge traffic, which has resulted in higher basis levels in some areas in 2019, as compared to other years.
The soybean market has also risen in recent weeks, but nearly as dramatically as the corn market. The soybean market is somewhat held in check by the projected large soybean carryover numbers for the 2018-19 marketing year. Soybean price are also being impacted by the continued declines in soybean export numbers due to the struggling U.S. trade negotiations with China and other countries. Nearby CBOT soybean futures had a closing price of $7.97 per bushel on May 10, which was near the lowest point of the year, before rising to $8.89 per bushel on May 30, which was the highest price since early April. November soybean futures, which help set 2019 soybean forward contract bids at local grain elevators and processing plants, closed at $9.15 per bushel on May 30, which again was the highest level in several weeks.
Cash prices at the soybean processing plants in Mankato rose above $8.30 per bushel on May 30, as compared to $7.61 per bushel on April 10. Cash soybean prices at local grain elevators in Southern Minnesota also saw considerable improvement in recent weeks, with local cash prices in a range of $7.65-$8.00 per bushel at the end of May. Unfortunately, that level of local soybean prices is still below breakeven levels for many producers. The soybean basis remains quite wide across most the Western Corn Belt, and sometimes widens even further at the local level during times of rapid CBOT market upswings.
The current strength in the corn market has been a nice surprise for many farm operators that still had a considerable amount of unpriced 2018 corn in storage to be sold in the Summer of 2019. Most farmers and ag lenders in the Midwest likely used a projected corn price of $3.25 to $3.50 per bushel when they prepared 2019 cash flow projections earlier in the year. So, being able to sell the stored corn near $4.00 per bushel, nets an extra $.50 per bushel or more above the cash flow projections. On 100,000 bushels of stored corn that results in an extra $50,000 to pay accounts payable or to reduce principal balances on farm operating lines of credit. This helps farm operators improve the “working capital” position on their farm balance sheet, which has been struggling in the past couple of years.
The March USDA Grain Stocks Report indicated that as of March 1, 2019, there were over 5.1 billion bushels of corn and 1.27 billion bushels of soybeans stored on farms in the U.S. According to the USDA Report, there were 730 million bushels of corn and over 103 million bushels of soybeans in on-farm storage in Minnesota on March 1, 2019. USDA does not survey the percentage of the bushels in on-farm storage that are forward priced for future delivery, as compared to bushels that are not priced. However, it is believed that a much higher percentage of the corn and soybean bushels that were still in storage on March 1st were not be forward priced in 2019, as compared to other recent years.
Many farm operators in the Midwest would also like to forward price some of their anticipated 2019 corn production, especially with local corn prices that are near or above $4.00 per bushel for Fall delivery at many locations. The challenge for farmers has been taking the risk on forward pricing their 2019 corn production if they have not yet planted the crop, or if the planted crop is in poor condition. Farmers with revenue protection (RP) crop insurance coverage can use that as a “safety net” to do some forward pricing with reduced risk. Producers should work with their crop insurance agent, marketing advisor, and ag lender for advice on these marketing strategies.
Farm operators probably need to stay fairly aggressive in taking advantage of the current strength in grain market prices to market any “old crop” corn that is not priced. This is the best cash corn price opportunity that we have had since mid-year of 2016. Similarly, it is probably wise to use available grain marketing tools to take advantage of current prices for the 2019 corn crop, as well as to reduce any potential downside price risk in future months. Even though local soybean prices are not as enticing as corn prices, the current cash and harvest soybean prices are considerably better than they were a few weeks ago. Once again, it may be wise to utilize some marketing tools to reduce future downside risk in the soybean market.
Typically, Spring weather markets do not last on a long-term basis and tend to level out as the growing season progresses. Some analysts predict that 2019 will be different due to the extreme delays in U.S. corn and soybean planting, especially for the corn market. Only time will tell how this year plays out weather-wise, as well as with the ongoing U.S. trade negotiations with China and other countries.