Grain Markets Decline Sharply

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Corn and soybean prices have dropped dramatically in recent weeks, both on the Chicago Board of Trade (CBOT) and at local grain markets. Currently, there appears to be a lot of uncertainty in the grain markets, partly related to speculator positions, 2011 production levels and the overall weakness in the U.S. and world economy. CBOT December corn futures closed at $6.38/bu. on Friday, Sept. 23, which compared to a close of $7.45 on Monday, Sept. 12, the day of the last USDA Crop Report. CBOT nearby corn futures had been above $7 since early April, except in the first half of July, when the corn futures prices also dropped to levels near the current corn futures prices, based on very good expectations for 2011 U.S. corn production.

CBOT November soybean futures have also dropped significantly in the past couple of weeks. CBOT nearby soybean futures closed at $$12.58/bu. on Sept. 23, compared to $13.96 on Sept. 12, which was a drop of over about 10% since the Sept. 12 USDA Crop Report. CBOT soybean futures have dropped over $1.80/bu. since late August, and this is the lowest level for nearby soybean futures since early December 2010.

Cash grain prices in Lake Crystal, MN, on Sept. 23 were $5.92/bu. for corn and $11.64 for soybeans, which are still very good harvesttime grain prices compared to recent years; however, theses prices are well below cash grain prices a few weeks ago. The current cash corn prices are the lowest new local prices since early July, while the current local cash soybean prices are lowest new crop prices during 2011. Cash grain prices a year ago at this time were about $4.35-4.50/bu. for corn and $10.25-10.50 for soybeans. By comparison, the cash grain prices at this time five years ago in 2006 were near $2/bu. for corn and $5/bu. for soybeans. Many growers took advantage of the favorable grain prices earlier this Summer to price a significant amount of their anticipated 2011 corn and soybean production. Other producers will likely store a significant amount of their 2011 production, hoping for improved grain prices in the coming months.

A bigger concern with the recent dramatic drop in grain prices may be for profitability and cash flow projections for the 2012 crop year, especially if prices continue to drop in the coming weeks. The cash price for harvest delivery in 2012 at Lake Crystal, MN, on Sept. 23 was $5.21/bu. for corn, and $11.69/bu. for soybeans, which should still be at profitable levels for most producers. Crop input costs for 2012 are likely to increase again in 2012 costs, especially fertilizer and seed costs. Land rental rates are also expected to increase significantly in 2012 in most areas. Some analysts expect breakeven crop prices at trend-line yields for 2012 to be $4.50-5/bu. for corn, and near $10.50 for soybeans. If that is true, a continued decline in expected 2012 harvest grain prices in the coming months could push 2012 prices to breakeven levels, or lower.

The recent drop in CBOT corn and soybean futures, as well as local grain prices, have come as a surprise to a majority farm operators, many of whom expected grain prices to be stronger following the Sept. 12 USDA Report. The Crop Report lowered the projected national corn yield to 148.1 bu./acre, and the total 2011 estimated U.S. corn production to 12.5 billion bushels, which was a significant decline from the August USDA estimates. The soybean yield and production estimates for 2011 were similar to the August USDA projections, but were slightly below final soybean yield and production figures for 2010. The one figure in the Sept. 12 USDA report that that was overlooked by may producers was that USDA also decreased the expected total corn usage for feed use, ethanol production, and exports for the coming year by approximately 400 million bushels.

Most grain market analysts feel that the current sharp decline in CBOT futures and cash grain prices are due to factors that are mainly outside normal supply and demand factors. These factors include the drought in Texas and the southwest U.S. that is causing high sell-off rates of cattle – which could reduce future feed demand – the troubled U.S. economy and stock market decline and the recent strength of the U.S. dollar compared to foreign currencies, which could negatively impact export markets. There is currently a lot of concern with the current status of the overall U.S. and world economy, which has caused many grain traders and speculators to become increasing cautious regarding the commodity markets.

Many of the professional analysts also feel that grain markets are likely to remain highly volatile in the coming weeks and months, with continued reaction to U.S. and world economic news, as well as to future USDA reports for production and grain stocks. Producers are encouraged to take a realistic approach to analyzing grain markets for selling the remainder of their 2011 corn and soybean production, as well as for pricing anticipated 2012 crop production. There will likely continue to be many opportunities to set market prices for 2011 and 2012 corn and soybean production.

 

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 kent.thiesse@minnstarbank.com.

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