Fall harvest is quickly approaching, and Frayne Olson, North Dakota State University Extension crop economist/marketing specialist, says it’s important to understand what the market is telling you when it comes to marketing strategies at or shortly after harvest.
As of the start of August, Olson says the market is signaling to farmers to price their soybeans ahead of time.
“There’s very little carry in the market for soybeans, right now. There’s limited incentive to store, so the market is providing an incentive to price early and get deliveries at or shortly after harvest,” said Olson during an interview on July 31.
According to Olson, the basis level for soybeans for harvest delivery is pretty favorable at the moment.
“If you were to sign a contract for delivery at harvest right now, with the futures prices and today’s basis, that basis level is sending the signal to farmers that the market wants to make sure there’s soybeans booked for harvest delivery,” he said.
“By the time we get to harvest, if you were to sell right off the combine, those basis levels at that time are going to be much wider. Right now, both from a futures market and cash market standpoint, there’s more incentive for farmers to price soon and do more forward pricing for harvest delivery,” Olson continued. “If you’re going to carry those soybeans into mid-winter or next spring, the market isn’t going to give you an incentive to do that.”
Compared to soybean, corn and wheat is a very different story. Both markets have had a rough couple weeks to end July and start August, but according to Olson, a lot of that is because of the expectation of a very big corn crop.
“We’re expecting national average yield or higher on corn. We’ll have plenty of bushels around,” he said.
On the demand side for corn, there has been some very good international buying of late, both with old crop and new crop corn.
“It looks like the international market is seeing corn as a value buy right now, as both China and Mexico, as well as a couple other countries, have been buying decent sized chucks of corn,” Olson said.
For corn, the market is signaling to farmers that there is an incentive to store their crop, but the question is: will storage pay?
“It’s not a really strong incentive to store,” Olson said. “By the time you look at the incentive in the market vs. storage costs, it’s kind of a push. At today’s levels, farmers are not excited about pre-selling corn, but the market is saying they’re not only not going to give you a big incentive to deliver at harvest, but they’re not going to give you a big incentive to store either. The market is kind of neutral.”
On the plus side, Olson says we’re starting to see ethanol demand rebound following the hard drop in production and profitability caused by COVID-19.
“Since the reopening, we’ve seen a rebound in prices and that has continued,” he said. “The ethanol industry is still gearing back up again. We’re getting close to those pre-COVID levels for ethanol production, which is good.”
That said, the demand base for ethanol is only so big. Feed usage looks to be on track, ethanol usage and the export market seem to be rebounding, and there’s international interest, but it also looks like we’ll have a big crop, so Olson says putting a marketing strategy together can be a “little fuzzier.”
“If you have the storage space, it might be a good idea to store it, but if you see profitable levels, by golly you better take advantage of it. I think it’s one of those years where it’s tough to get a big rally with corn,” he said.
Olson says there’s an indirect linkage between what happens in the corn market and what happens in the wheat market. So what’s the wheat market telling farmers? There’s an incentive to store the crop, but it’s a weak one.
“Spring wheat continues to drift lower, and it’s getting pushed along, especially in western North Dakota because of drier conditions. It’s going to be an okay crop, but not a fantastic one,” Olson said. “It sounds like the Canadian spring wheat crop will be pretty good. On the supply side, there has been some production problems in Europe and Ukraine – the whole southern Black Sea region. Their winter wheat crops weren’t as good as they had hoped earlier in the season. They’re not awful, but definitely below average.”
Even with those production problems, globally speaking, there’s still plenty of wheat around the market, according to Olson, so it’s still a buyer’s market.
“What I’m hoping for, as we get into harvest and get those yield reports coming out, is that we may see some rallies. Historically, it does pay for farmers to store their wheat and sell it in that November-December timeframe. Based on the math in the market, it looks like there’s a weak incentive to try and do more marketing after harvest, which matches up with our supply and demand conditions, as there hasn’t been a real aggressive demand for wheat yet,” Olson concluded.