Focus on Ag: Marketing grain can be a difficult task

Kent Thiesse
Farm Management Analyst
Kent Thiesse

Many farm operators will tell you that making grain marketing decisions is one the hardest parts of farming. This is especially true during times of highly volatile markets such as those seen in recent months.

Earlier in 2022, the price for December corn futures on the Chicago Board of Trade were trading near $5.50 per bushel, which was the highest level of December corn futures in January, prior to spring planting, since 2013.

Since this was at a profitable level for most corn producers, it seemed to be a signal to forward price a portion of the anticipated 2022 corn crop; however, by May 1 the December corn futures price had reached $7.50 per bushel. Since that time, the overall trend of corn futures prices has been fairly steady; however, there have been some wide daily swings in corn prices.

Similar to corn, CBOT November soybean futures prices were trading near $13 per bushel in January of this year, which was the highest pre-plant price for November soybean futures since 2013. By April this year, the November futures price had increased to over $15 per bushel, which is close to the current futures price level.

This has been the highest sustained price levels since the period from 2011 to 2013. The 2022 “new crop” soybean futures price has also been highly volatile in recent weeks, with wide price swings up and down.

Both corn and soybean prices rose significantly in 2021, which is a trend that has continued in the first half of 2022. This has improved the overall profitability projections for Upper Midwest grain producers for the 2022 growing season.

The rise in both the CBOT prices and the local cash grain prices has been driven by a combination of grain stocks adjustments by the U.S. Department of Agriculture, lower than anticipated U.S. corn and soybean production levels, very strong export demand for both commodities, and the Russian invasion of Ukraine earlier this year. In fact, some analysts have suggested that the supplies of both corn soybeans for end users in portions of the U.S. could get very tight by late Summer this year before the 2022 commodities are available.

The potential for a growing drought area in some portions of the Corn Belt, as well as further potential production reductions in South America have added to the somewhat “bullish” nature of the commodity markets in recent months.

The nearby CBOT corn futures price has exceeded $5 per bushel since early 2021 and has been above $6 per bushel since early 2022. From 2015 through 2020, nearby corn futures were below $4 per bushel for a high percentage of the time.

The last extended period of higher levels of CBOT corn futures prices occurred from late 2010 through 2013. Nearby corn futures rose above $5 per bushel in September of 2010, exceeding $6 per bushel by early 2011, and going over $7 per bushel by June of 2011. Corn futures stayed strong in 2012, only briefly dipping below $6 per bushel, before reaching the all-time high of $8.38 per bushel during the intense U.S. drought conditions in August of 2012. Nearby corn futures stayed above $7 per bushel for the balance of 2012 and remained above $6 per bushel for most of the first half of 2013, before dropping significantly in the second half of 2013, ending the year near $4.25 per bushel.

Similar to corn, the nearby CBOT soybean futures price has been above $13 per bushel for all of 2021 and has exceeded $15 per bushel since early in 2022.

Prior to late 2020, the nearby soybean futures price had not exceeded $12 per bushel since late Summer of 2014. From 2015 through early 2018, nearby soybean futures traded between $9 to $10.50 per bushel, with a brief period above $11 per bushel in early Summer of 2016. From mid-2018 through mid-2020, nearby soybean futures traded below $9 per bushel a majority of time, due to export market implications resulting from the U.S. trade war with China.

Since the China export markets returned to more normal patterns in mid-2020, soybean futures have remained above $10 per bushel. The nearby soybean futures prices continue to be driven by strong export demand to China and other countries, as well as some 2022 production issues in South America.

Local grain elevators, ethanol plants and processing plants generally set their bid prices based off the CBOT futures price for a corresponding month. The difference between the local cash price being offered in a given month and the closest CBOT futures price is known as “basis." The basis levels for both cash corn and soybeans have been at very tight levels most of the time in the past two years.

In fact, there has been a positive basis for both corn and soybeans in the past few months at many processing plants and local elevators in portions of the Upper Midwest. This situation does not occur very frequently in the region and usually does not last very long.

For example, in recent weeks there have been positive basis levels above the corresponding CBOT futures prices for 2021 corn that is still being sold at some locations. The soybean basis level at regional processing plants for cash deliveries has been positive several times in recent weeks.

In the five-year period from 2016-2020, corn basis levels in May and June in southern Minnesota typically ranged from $.15 to $.25 per bushel under CBOT prices. Soybean basis levels at processing plants during the late spring months in those years ranged from $.40 to $.60 per bushel under the CBOT futures prices, with even wider basis levels at local grain elevators.

For many farmers, the major marketing focus in the past couple of months has been to “lock-in” favorable prices on the corn and soybeans that is being grown in 2022. The “new crop” CBOT December corn futures rose from near $5.50 per bushel in mid-January to over $7 per bushel by early April and have stayed at that level throughout most of May and June.

Local ethanol plants and grain elevators in southern Minnesota were offering forward contract corn prices for the 2022 crop in the $6.50-$7 per bushel in the past few months. The bids for 2022 new crop corn during early summer this year are among the highest corn prices since 2013. In recent weeks, there have been several daily swings both up and down of $.20 to $.40 per bushel in nearby corn futures prices, which can make day-to-day grain marketing decisions very difficult at the farm level.

Similar to corn, the 2022 “new crop” CBOT November soybean futures price started the year around $13.50 per bushel before rising to over $15 per bushel by mid-April, where the futures prices have remained until late June.

In recent weeks, soybean contract prices for fall delivery in southern Minnesota have generally been between $14-$15 per bushel at local grain elevators, with prices typically $.20-$.30 per bushel higher at soybean processing plants. The basis level for 2022 “new crop” soybeans has generally been $.20-$.25 per bushel below the CBOT November futures price at processing plants and $.45-$.60 per bushel below a grain elevators.

In addition to the other grain marketing factors that a farmer must consider, weather and production are also part of grain marketing decisions. A producer likes to make sure that they will have the bushels to sell before they forward contract the grain from the crop in the field.

This can be difficult in a year such as 2022, when many areas of the Upper Midwest were impacted by vey late planting dates. In addition, very hot and dry conditions are raising concerns regarding potential drought conditions that could impact crop yields later in the growing season.

This can make it difficult for farmers to lock-in prices on a high percentage of the anticipated 2022 production, even though we have had some very favorable “new crop” prices for corn and soybeans.

Most producers have been pondering over grain marketing decisions for the 2022 corn and soybean crop in recent weeks. Being able to “lock-in” local cash prices at $6.50-$7 per bushel for corn and $14-$15 per bushel for soybeans is the best opportunity that has existed after spring planting time in many years.

On the other hand, farmers do not want to miss a grain price “run-up”, such as occurred in 2012. It is important to remember that the catalyst that drove the rapid 2012 commodity price increase was a major U.S. drought that developed in mid-summer that year.

If a major drought does not develop in 2022, corn and soybean prices are likely to follow a more typical seasonal price pattern as we progress toward harvest. No two years are the same, but grain markets do tend to follow seasonal patterns unless there is something that disrupts the market