Table of Contents:
- Corn, Soybean Harvest Nearly Complete
- <strong>Grain Prices Strong</strong>
- Minnesota's 2010 harvest was highly variable, mainly due to the erratic weather conditions during the growing season
- Most of the 2010 corn crop was harvested with a test weight of 57-60 lbs./bu.
- Many are comparing the current market scenario to fall 2007 into the 2008 crop year
The combination of lower-than-expected crop yields nationwide, along with increased grain exports and expected grain demand, have lead to the highest corn and soybean prices, since the record prices set in 2008. Current corn futures prices on the Chicago Board of Trade (CBOT) were $5.79/bu., as of Nov. 1, – up from $4.24 on Aug. 31 and $3.35 in mid-June.
Current soybean futures prices on the CBOT were $12.22/bu. on Nov. 1 compared to $10.08 Aug. 31 and $9.35 in mid-June. The basis between CBOT futures prices and local cash prices remains quite wide in most areas of southern Minnesota, ranging from 50-80¢/bu. lower for corn and 70¢-$1/bu. lower for soybeans. Many are comparing the current market scenario to fall 2007 into the 2008 crop year, given the current strong demand for U.S. grain. Of course in 2008, crop prices dropped dramatically after peaking earlier in the year, which is something to keep in mind heading into 2011.
The very rapid rise in crop prices is kind of a mixed-blessing to crop producers. The higher commodity prices offer some very good pricing opportunities for producers who still have some 2010 corn and soybeans left to sell, as well as for price potential for the 2011 crop. The problem is that many users of corn and soybeans, such as ethanol plants and some grain elevators, are buying corn on an as-needed basis only, and are not offering forward contracts very far into the future. This means that producers may not be able to fully take advantage of the very high corn and soybean prices, unless they want to take a hedge or options position on the CBOT. Pricing grain with the CBOT requires producers to cover margin calls if grain prices continue to move higher. Some producers who hedged 2010 anticipated grain production several months ago now have $1-2/bu. in margin calls, which in most cases requires borrowed funds to finance the hedges. Crop producers are also faced with rapidly rising crop input and land rent costs for the 2011 crop year.
The high grain prices are also bringing on the return of negative profit margins in livestock production, as well as for renewable fuel plants. This could lead to major liquidations of beef cattle, dairy cattle and hogs, as well as shutdowns of some renewable energy plants. Many livestock operations had returned to profitable levels earlier in 2010; however, the combination of higher feed costs and lower market prices has now lowered profit levels to breakeven or lower for many operations.
Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at firstname.lastname@example.org.