By Kent Thiesse
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 corn and 29 percent of soybeans in the U.S. were planted, 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. Sometimes, spring planting delays can lead to brief enhancements in the grain markets, but delayed planting is usually not as extreme as this year. The final South American harvest numbers and grain export prospects also can have an impact. 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 nearby corn futures hit a low point the second week of May, near $3.40 per bushel. They have been on an upswing ever since, however, due to the extreme planting delays. The July corn futures price closed at $4.36 per bushel on May 30, before declining slightly on the following day, the highest closing price for nearby CBOT corn futures since June 2016.
December corn futures prices, which correlate to harvest prices for the 2019 growing season, have also risen dramatically in the past three weeks. They closed at $3.72 per bushel on May 10 and increased to a closing price of $4.52 per bushel on May 30, the highest price in several years.
Local corn prices in southern Minnesota have also improved considerably in recent weeks. Cash corn prices were nearly $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 cents above cash price levels.
There is wide variation in the basis level for corn across the Midwest, which 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, driving up basis levels in some areas in 2019.
The soybean market has also risen in recent weeks, but not nearly as dramatically as the corn market. It is hampered somewhat by the projected large soybean carryover numbers for the 2018-19 marketing year. They are also impacted by continued declines in soybean export numbers from trade uncertainties between the United States and China, among other countries.
Nearby CBOT soybean futures had a closing price of $7.97 per bushel on May 10, near the lowest point of the year, before rising to $8.89 per bushel on May 30, 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, 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 is still below breakeven levels for many producers. The soybean basis remains quite wide across 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.
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, potentially netting an additional 50 cents/bushel above 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.
The March USDA Grain Stocks Report indicated that as of March 1, there were over 5.1 billion bushels of corn and 1.27 billion bushels of soybeans stored on farms. There were 730 million bushels of corn and over 103 million bushels of soybeans in on-farm storage in Minnesota on March 1.
USDA does not survey the percentage of these bushels that are forward priced, but it is believed that a much higher percentage of the corn and soybean bushels that were still in storage on March 1 were not forward priced in 2019.
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 crop insurance coverage can use that as a safety net to do some forward pricing with reduced risk.
Farm operators need to take 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 corn and soybean planting, especially for the corn market.
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