The 2010 corn and soybean harvest is nearly completed in most areas of southern Minnesota, with the exception of a few fields and farms where wet soil conditions slowed the harvest process. In recent days, farm operators have been busy completing primary tillage, applying fall anhydrous and dry fertilizer applications, as well as injecting liquid swine manure for the 2011 crop year. Conditions for completing harvest and the other fall crop-production practices have been almost ideal.
In most areas of southern Minnesota, the 2010 harvest was highly variable, mainly due to the erratic weather conditions during the growing season. Whole-field corn yields generally ranged from 170 to 210 bu./acre across the region, with that variation sometimes occurring on the same farm or in the same township. Some whole-field yield levels were even lower in areas that were hard-hit by wind and hail storms, as well as heavy rains in mid-summer and again in September. The rather large yield variation in 2010 corn yields was due to the large amount of severe weather occurrences across southern Minnesota during the growing season, extended periods of excessive soil moisture in areas with poor field drainage, loss of available nitrogen following heavy rains in June, as well as crop rotation and corn hybrid differences.
The good news with the 2010 corn harvest was the dryness of the corn and the quality of the corn at harvest. Most of the corn harvested in southern Minnesota in October was at 13-17% moisture, meaning it could go directly to farm grain bins without additional drying, or could be hauled to grain warehouses with little or no price dockage for excess kernel moisture. Most of the 2010 corn crop was harvested with a test weight of 57-60 lbs./bu. – well above the standard test weight of 56 lbs. This corn quality results in higher-quality corn for processors, and in improved feed efficiency for livestock producers.
By comparison, in early November 2009, over half of the corn remained to be harvested, and most corn was being harvested at 24-30% moisture, requiring considerable drying before being placed in storage; corn test weights were 49-52 lbs./bu. This resulted in very high corn-drying costs in 2009, as well as large discounts for moisture and corn quality on 2009 corn that was sold at harvest.
In addition, local corn prices in early November 2010 are approximately $1.50/bu. higher than they were in early November 2009. So, even if some corn yields are a bit disappointing, the overall profit from the 2010 corn crop will likely exceed 2009 profit levels for most producers, due to lower corn drying costs, fewer quality discounts and higher corn prices.
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.