If you go to almost any rural community and ask someone what the current cash corn price is, you are likely to get a response of “somewhere between $7 and $8/bu.” You may even get that response from some farmers who have not been following the grain markets closely in recent weeks. We have kind of been drawn into a mentality that corn prices of $6-8 are the new normal, rather than a temporary price upswing; however, that type of thinking could change quite dramatically in the next couple of years.
During the first couple of months in 2013, local cash corn prices in southern Minnesota have remained near or above $7 for 2012 corn that was stored, but not yet priced. However, local corn prices have started to drop in recent weeks, by about 30-35¢/bu. since early February, with a reduction of nearly $1/bu. from the highest cash corn prices for the 2012 crop in early September of last year. A large amount of 2012 corn that is stored on farms has already been forward priced for delivery later this spring or summer. The average market price on 2012 corn for many producers will likely not be above $7, as a lot of corn was forward priced in spring and early summer 2012, before the effects of the 2012 drought caused prices to increase sharply by late summer; however, most average 2012 corn prices should be above $6.
Local cash soybean prices in southern Minnesota have also shown a sharp drop in prices in recent weeks, dipping to near $14/bu. by mid-February, which is still a strong price level. Local soybean prices had dropped by approximately $3.50/bu. from the highest prices for 2012 soybeans in late August last year. Similar to corn, many farmers forward contracted much of their 2012 soybean production prior to the very high cash prices that resulted from the 2012 drought. Most farm operators in the region have forward priced a large portion of the soybeans that are stored on the farm for future delivery, and have very few 2012 soybeans in inventory to be sold in 2013, which is helping to keep the cash soybean market quite strong for remaining 2012 soybeans.
USDA is currently estimating the U.S. on-farm corn price for the 2012-2013 marketing year in a range of $6.75-7.65/bu. – an average of $7.20. The 2012-2013 marketing year is for corn and soybeans grown in 2012, and runs from Sept. 1, 2012 through Aug. 31, 2013. By comparison, the average U.S. on-farm market price for corn for the 2011-2012 marketing year was $6.22/bu. and was $5.18 for the 2010-2011 marketing year.
USDA is estimating on-farm soybean market prices for the 2012-2013 marketing year in a range of $13.55-15.05/bu. – an average of $14.30. The average U.S. on-farm market price for soybeans for the 2011-2012 marketing year was $12.50, and was $11.30 for the 2010-2011 marketing year. Both corn and soybean supplies will likely remain quite tight prior to 2013 crop production.
The biggest concern with the recent drop in corn and soybean prices is for the 2013 crop year and beyond. Many farm operators, suppliers, landlords and others are making future crop budgets assuming that the crop price levels of the past couple years will continue into the future. There is a lot of evidence to suggest that this may not be the case. As of February 22, the local new-crop price for 2013 corn in southern Minnesota had dropped to $5.10-5.20, and the new crop 2013 soybean prices to $12-12.25. USDA is now projecting average U.S. on-farm prices for the 2013-2014 marketing year – which begins on Sept. 1. 2013 – at $4.80 for corn and $10.50 for soybeans. These price levels would make profit margins much more challenging for grain producers in the coming years.
The breakeven cost of producing corn in southern Minnesota at trend line yields will likely be close to $5/bu. for many farmers in 2013, and near $12 for soybeans. Breakeven price levels could rise even higher for farmers who experience reduced crop yields in 2013, or for farm operators with higher-than-normal land costs. The expected 2013 breakeven prices compare to just over $3.50/bu. for corn and near $8/bu. for soybeans as recently as 2008. Cash rental rates for farmland have increased dramatically in the past two years in many areas of the Upper Midwest, and can be a large variable in breakeven prices for corn and soybean production across the region.
During 2011, 2012, and early 2013, local cash corn prices have spent very little time below $6; however, as recently as summer 2010, local corn prices were near $3.50/bu. Similarly, the local cash soybean price has spent most of 2011 and 2012 above $12; however, local soybean prices were near $9 in early summer 2010. The consistently high cash price levels for corn and soybeans in 2011, 2012, and early 2013 have made grain marketing decisions pretty easy. By contrast, if we drop down to the price levels in the next few years that USDA recently projected for the 2013-2014 marketing year, there will be a premium for the farm operators that have a solid grain marketing plan in place that is part of an overall farm risk management strategy.
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.