In many years, some of the best grain marketing opportunities occur from mid-April until late-June. Sometimes, planting delays can lead to market price improvement, however, that is not likely to occur in 2020 due to accelerated planting progress. In addition, the worldwide outbreak of COVID-19 has totally disrupted all markets, including the grain markets. It is not fully known how the current coronavirus situation will affect the normal spring rally in grain markets, but most likely any rallies will be short-lived This is why farm operators need to be ready to make some grain marketing decisions, even during this period of low prices.
In 2020, farm operators were thrown a marketing “curveball” related to their normal grain marketing strategies. The sudden outbreak of coronavirus in the U.S. in mid-March, together with the challenges in the biofuels industry, caused local grain prices to decline rapidly in late-March and April. The March 31 USDA Grain Stocks Report estimated total corn stocks at 7.95 billion bushels and soybean stocks at 2.25 (BB), with over half of those grain stocks in on-farm storage. Many grain marketing analysts suspect that a large number of the on-farm grain stocks are in the Upper Midwest, with a high percentage of the corn and soybeans not yet priced. The sharp drop in local cash corn prices in recent weeks is costing Midwest farmers millions of dollars.
The Chicago Board of Trade (CBOT) nearby corn futures have declined 50-60 cents per bushel from mid-January until early-May of this year, closing at $3.18 per bushel on May 1. The current level for nearby corn futures prices are the lowest since the Summer of 2016. Local cash corn prices in southern Minnesota have declined by 80-90 cents per bushel since mid-January, closing in the $2.70 to $2.80 per bushel range in recent weeks. Local corn prices declined at an accelerated rate compared to CBOT corn futures prices due to greatly reduced corn demand at many ethanol plants, resulting from sharply lower world oil prices and reduced U.S. gasoline consumption following the COVID-19 outbreak. The level of gasoline consumption is not likely to increase to pre-coronavirus levels anytime soon.
The CBOT nearby soybean futures had a closing price of $8.49 per bushel on May1, which was a decline of $.40-$.50 per bushel from mid-February price levels. Cash prices at the soybean processing plants in Mankato have decreased by a similar amount in the past couple of months. Prices at local grain elevators also saw a considerable decline, with local cash prices in a range of $7.80-$8.00 per bushel across southern Minnesota, as compared $8.60-$8.75 per bushel in February. Unlike corn, there have been a few brief rallies in the soybean price, usually associated with export sales to China and other countries. However, recent tensions between the U.S. and China over coronavirus could temper the trading activity between the two countries, which could affect the soybean market later in the year.
The trend for CBOT “new crop” harvest prices in 2020 have followed a similar trend to cash prices for both corn and soybeans. CBOT December corn futures have traded near $3.35-$3.40 per bushel in late-April and early-May, closing at $3.37 per bushel on May 1, which is at the lowest level since 2016. CBOT November soybean futures closed at $8.55 per bushel on May 1, which is at the lowest level for “new crop” soybean futures since the Fall of 2018. Local corn prices for fall-delivery in southern Minnesota have been in the $2.80-$2.90 per bushel range in recent weeks. Local soybean forward prices for Fall delivery have been in the $7.70 to $7.55 per bushel range in recent weeks, with slightly higher price offerings at the soybean processing plants in the region. Most producers have 2020 “breakeven” prices of $3.25-$3.50 per bushel for corn and $8.25 to $8.75 per bushel for soybeans.
The local price “basis”, which is the difference the CBOT futures price and the local cash price, widened out considerably in recent weeks at most locations in the Upper Midwest, especially for corn.
The basis level is impacted by local demand and transportation costs for grain. The sudden closure of some ethanol plants in Minnesota, Iowa, and South Dakota, together with production cutbacks at other plants, resulted in the rapid widening of the corn basis across the region. The local basis for corn prices was $.05-$.15 per bushel early in 2020 at in a large portion of southern Minnesota and northern Iowa. However, the challenges in the ethanol industry have resulted in a rapid rapid widening of local corn basis levels in the region, which now stand at $.50 per bushel or more at many locations.
Soybean basis levels in the same region have also widened slightly in recent weeks, but not nearly to the degree that corn basis levels have widened. It will be hard to achieve much basis improvement in the coming months, considering the anticipated large supply of U.S. corn and soybeans that has been projected for the 2020-21 marketing year. About the only scenario that could tighten the basis would be development of a fairly major U.S. drought during the 2020 growing season.
Even though corn and soybean prices are below desired levels, farm operators still need to pay attention to any rallies in grain market prices in the coming weeks to market any “old crop” corn and soybeans that remain in storage. The current cash corn prices near $2.80 per bushel are well below the 2019 “breakeven price” levels for most corn producers in the Midwest. The cash corn price in the coming months is not likely to return to the $3.50 per bushel levels that existed earlier in 2020. Producers that still have a large amount of unpriced 2019 corn in storage need to evaluate local corn price offerings against the risk of further 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 is 70-80 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 2019 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 2020 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 or early-summer of the year that the crop is produced. 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. The challenge in 2020 will be achieving any favorable forward pricing opportunities for corn and soybeans, given the potential supply and demand issues that currently exist.