Watch demand and basis

Farm Forum

Futures prices have fallen back to mid-June levels, prior to weather concerns that drove prices higher. If you missed the summer rally, marketing corn and soybeans promises to be a challenge. While US corn production this year is estimated by USDA to be the third largest on record at 13.686 billion bushels, soybean production at 3.916 billion bushels is estimated nearly as large as last year’s record crop.

Demand is critical

Demand for both US corn and soybeans has already become a key driver for futures prices. According to the USDA World Agricultural and Supply Estimates (WASDE) report for the 2015-16 marketing year, demand for corn is expected to increase slightly to 13.775 billion bushels and the midpoint national average cash price is projected at $3.65 per bushel.

Corn demand for feed and exports remains identical to the 2014-15 marketing year, while ethanol production increases by 50 million bushels. Soybean demand for feed increases slightly by 15 million bushels, but exports decline by 100 million bushels.

Soybean demand is expected to decline slightly to 3.717 billion bushels and the midpoint national average cash price is projected to be $9.15 per bushel.

Concerns about demand for both corn and soybeans may stem from two different sources. The first is that exports of US corn will fall short of the current USDA projection of 1.85 billion bushels. The second concern is about weak commodity demand resulting from slow global economic growth and severe weakness in financial markets. A weakening demand implies that a lower cash price will be required to entice an increase in consumption.

As a result, cash pricing opportunities will be limited heading into harvest. New-crop corn prices in central Iowa are in the $3 to $3.50 range, while cash prices for soybeans are in the $8 to $9 range. Prepare now for harvest as most of Iowa crops appear to be large and near normal for maturity.

Be ready to go

On-farm storage should already have been emptied to store 2015 crops. When we do get futures and/or cash price rallies, they will likely be short-lived. Farmers should be ready to pounce should an attractive basis bid be offered. Basis is the difference between the local cash price minus the nearby futures price. In marketing crops, farmers can make marketing decisions that target the futures price alone (a hedge-to-arrive contract), or the basis alone (a basis contract) or the combination of the two prices.

Should we get into delayed harvest conditions due to weather, watch for localized basis plays as many processors will be geared up for a steady flow of bushels during harvest. Delivering corn bushels during harvest might avoid the fixed costs associated with drying, shrink and then storing those bushels.

Sell corn for cash?

Compare cash corn sales with a moisture discount. ISU Extension has developed an online decision tool to compare selling your corn at harvest versus the shrink loss, drying and storage costs you would incur by drying and storing corn.

Using the Ag Decision Maker Decision Tool A2-32, Corn Drying and Shrink Comparison (, plug in your own information and assumptions. Here’s how it works.

Step 1 – Variable cost estimate for on-farm drying: Choose a drying system and input your variable costs. Those are propane, electricity, drying time labor, drying capacity, average points of moisture removed per bushel, total bushels per year and total investment in drying system.

Step 2 – Yield and moisture projections for unharvested corn: Input your own decisions regarding acres harvested, wet gross bushels yield, corn moisture in field, days before harvesting and expected cash grain price at harvest.

Step 3 – Compare your grain sale alternatives at harvest: You can 1) Sell wet corn and incur a moisture discount; 2) Dry the grain commercially and then sell; 3) Dry it on-farm and sell it.

Step 4 – Input your own final moisture level for commercial sale, moisture discount for wet corn sale, commercial drying charge and shrink factor. You might want to consider additional on-farm costs for drying and hauling.

Step 5 – Input your own sales alternatives for after storage. This includes the number of months grain will be stored, cash price paid after storage, moisture level for storage, minimum charge for commercial storage, base rate in months, monthly minimum charge commercial storage after mini­mum, quality deterioration on-farm storage, fans, electricity and labor on-farm storage and short-term interest rates.

The information files (pdfs) and decision tools (Excel spreadsheets) for grain drying, shrink and storage were developed by retired Iowa State Economics Professor William Edwards and are posted on the Ag Decision Maker website at:

• AgDM File A2-31, Estimating the Cost for Drying Corn (

• AgDM File A2-32, Corn Drying and Shrink Comparison (

• AgDM File A2-33, Cost of Storing Grain (