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Difficult Choices

by | Oct 4, 2018

Difficult Decisions - Grain Markets and LendingHarvest is here and it is time to assess storage opportunities in corn and soybean markets.  As a lender, here are a few items that should be on your customer’s minds.

Prices are low

In the Northern Plains, producers are looking at cash soybean prices of $7.30/bushel in southern Minnesota, and as low as $6.75/bushel in North Dakota. The last time we saw prices like this was the harvest of 2007. Corn prices are $3.00/bushel, +/- 20 cents in the same areas. $3 corn at harvest is not profitable and, unfortunately, not new. These prices are all too similar to levels seen in each of the last four harvests.

Carrying charges are large

Carrying charges are the price differences between nearby and deferred futures contracts. When supplies of grain are abundant, carrying charges tend to be large and positive (i.e., deferred contracts trade at a premium to nearby contracts). In corn, the Dec’18/Jul’19 carry has been at or near 25 cents/bushel – your typical big carry in corn. Look at the soybean market – the Nov’18/Jul’19 is about 45 cents/bushel. That is large and large carries are NOT typical in soybeans. Unfortunately, a large carry in soybeans simply speaks to a weak fundamental situation.

Basis is poor

The harvest basis for corn is weak but similar to recent years. But soybeans… oh soybeans! We are redefining a weak basis. Would you like to see ground zero for the full impact of a trade war? Head for North Dakota, where the soybean basis is somewhere between 160-195 cents under. North Dakota soybeans generally move towards the PNW for shipment to Asia, but that movement has paused because…

The trade war continues

Low prices, large carrying charges, and a poor basis will continue as long as trade issues remain unsettled. Another large U.S. crop is certainly a contributing factor, but the trade war looms large in our current situation.

You say, “Enough with the bad news! What should I do with my 2018 harvest?” Depending on your actions last spring, the answer will be (to borrow from Charles Dickens) a tale of two strategies.

If you were one of the many smart producers who priced new crop grain last spring, you are in good shape (for this year, anyway). If you have on-farm storage, I suggest that you put grain priced earlier into storage and sell the carry in the market. Many elevators are bidding 25-45 cents over the harvest price for corn or soybeans delivered in June 2019. Combine that bump with actions before harvest and many will be looking at $4 corn and $9.50 soybeans (see my November 2017 CSD column, “How to get $4 corn”) on every bushel where you had the courage to price early.

If you did not price early, your choices are few and not appealing. You can store grain and wait for a quick end to the trade war, or bank on a crop disaster in the Southern Hemisphere. Neither are likely events. We may iron out near-term tariff issues, but longer-term trade impacts could linger for years. Argentina suffered a crop disaster last year. Consecutive bad crops are rare.

What should farmers be doing?

Sell soybeans, store corn at harvest and hope for a rally to sell.

Editor’s Note:  This article was adapted from a column that originally ran in the Corn and Soybean Digest.  Ed Usset is a marketing specialist at the University of Minnesota Center for Farm Financial Management. he authored “Grain Marketing is Simple (It’s Just Not Easy)“; helped develop “Winning the Game” grain marketing workshops; and leads Commodity Challenge, an online trading game.

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