Grain Markets Continue To Be Strong
Cash corn prices at local grain elevators in southern Minnesota were near the $5.50/bu. range on May 22. Local cash corn prices have stayed in the $5.40-5.60/bu. range for several weeks. Current cash corn prices are about a $2.00-2.20/bu. higher than cash corn prices in late May 2007, and over $3.50/bu. higher than cash corn prices in late May 2006. Similarly, cash soybean prices at local grain elevators have been strong in recent weeks, ranging in the $12.00-13.00/bu. range, which compares to about $6.50-7.00/bu. in late May 2007, and $5.40-5.60/bu. in late May 2006.

Many farm operators had already forward priced a significant amount of their 2007 grain inventory at lower market prices than were profitable, before the current strong grain markets occurred in recent weeks. However, for farm operators that still have a considerable amount of 2007 corn and soybeans stored on the farm waiting to be sold, it would probably be a good farm management decision to take advantage of favorable marketing opportunities to liquidate some of the 2007 grain inventory.

Typically, cash prices for old-crop corn and soybeans tend to decline after late June in most years, unless there is a major crop production challenge looming, such as a drought. New-crop prices for 2008 grain have also been quite strong in recent weeks at local grain markets, ranging in the $5.50-5.75/bu. range for corn, and the $11.00-12.00/bu. range for soybeans.

There also may be some opportunities in the next few weeks to forward price some of the 2008 corn and soybean crop, on new-crop prices, either at harvest or for post-harvest delivery. The new-crop corn and soybean prices also tend to decline after late June in most years, unless there are production or supply factors affecting the grain markets. Of course, in the past couple of years grain markets have not been following normal patterns very close, due to strong worldwide demand and very tight grain stocks.

Grain Marketing Dilemma
Currently, there are some very favorable grain market prices for corn and soybeans for both the 2008 and 2009 crop years. However, as a result of the high degree of volatility in the grain markets, and the costs of covering margin calls for Chicago Board of Trade (CBOT) grain positions, many local grain elevators are not offering forward contract opportunities to farmers for 2008 and 2009 grain.

Some grain elevators will allow farm operators to forward contract 2008 grain for post-harvest delivery, and 2009 grain if the farm operator is willing to set up an account to cover all or part of the necessary margin calls. The other option that a grain producer has for forward pricing 2008 or 2009 grain is to take their own hedge position on the CBOT, which again would require fund availability to cover necessary margin calls. Either way, there is some added cost to the farm operator to be able to forward price the 2008 and 2009 grain, in order to take advantage of the strong prices.

If farm operators are going to set up margin-call accounts to cover either forward grain contracts at the local grain elevator, or direct grain “hedge” accounts on the CBOT, they should discuss these marketing arrangements with their ag lender prior to finalizing those agreements.

It is important that the ag lender understand the grain marketing transactions, and be willing to finance the required margin-call accounts. If the farm operator is locking-in a forward price through a forward contract, the margin-call account should balance out by the time the grain is delivered. The only cost to the farmer should be the interest paid on borrowed funds required for the margin-call account.

For direct hedged positions on the CBOT, there could also be some difference in basis from the time the grain was originally hedged, until the date the hedge is lifted. If the basis narrows, that would be a gain for the farm operator, while it would be a loss if the basis widens by the time the hedge is lifted. Most times, the basis change on a grain hedging transaction is only a few cents per bushel.

Farm Bill Delayed Again
Just when it looked like we might finally have a new farm bill, another technical “fly in the ointment” has arisen. As expected, President Bush vetoed the new farm bill that was passed by Congress, citing higher-than-warranted budget increases, lack of reform in payments and payment limits, some increases in target prices and loan rates, and other issues as reasons for the veto.

Also as expected, on May 21-22, both the U.S. House and U.S. Senate passed an override of the Presidential veto to enact the new farm bill into law. However, there was a slight problem. The version of the new farm bill that was vetoed by President Bush was missing the entire Trade Title of the farm bill (34 pages out of the total of over 2,000 pages). It would appear that the rest of the new farm bill other than the Trade Title, is now enacted into law, with follow-up action required only on the Trade Title after Memorial Day.

The Trade Title of the new farm bill will likely not become law until after June 1, because Congress is on recess May 27-30. Focus of the new farm bill will now switch to implementation by USDA over the next several months.

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.