Suddenly, there is an incentive to store grain. Just a few weeks ago the market was telling farmers to sell their grain now. There was little carry in that market. That has changed.
The biggest reason for the change would appear to be the Sept. 30 USDA report that showed 80 million bushels more of the 2020 crop than had previously been reported.
“Now, all of a sudden, the market said ‘now what?’” says Karl Setzer of Agrivisor.
Setzer says the prices for corn and soybeans are still good. Soybean prices in the $12.40 to $12.50 range aren’t bad at all, he says. But now there is a 22 cent carry in the soybean market between November and March. That is enough to pay for storage.
“I’m not discouraging anybody from holding inventory,” Setzer says now.
Of course, he says, there is a downside risk in the market. The crop is coming out of the field bigger than had been anticipated. The potential is there for very large South American corn and soybean crops. Last year a drought limited the South American corn crop, but this year the expectation is for as much as a 34% increase in the corn crop in South America.
The soybean crop is also expected to be larger than last year, with early estimates putting that crop at 144 million metric tons, compared to 137 million metric tons last year.
That South American crop is also hitting the market earlier with each passing year, narrowing the time frame for U.S. producers to sell their crop without competition from Brazil and Argentina.
But Setzer says there are opportunities for U.S. farmers. The right marketing mix will depend on factors such as cash flow needs and on-farm storage capacity. But he says strategies such as using options to lock in a floor under the market may not be a bad idea this year. And strategies that were devised before that Sept. 30 report may now need to be revised.