About when it is least expected, the corn and soybean markets showed a strong spring rally, which is what has been occurring in last couple of weeks. Even though spring rallies in grain prices are fairly typical, the strength of spring market enhancement in 2016 was somewhat surprising. The large anticipated 2015-16 ending stocks for both corn and soybeans, along with a rather robust planting intentions report on March 31, raised concerns about grain market improvement this year. However, the combination of crop production concerns in South America, a potential summer drought in the U.S., and some strength in the export market, have resulted in the recent market enhancement.
The Chicago Board of Trade (CBOT) May soybean futures had a closing price of $9.56 per bushel on April 15, which was the highest nearby futures closing price in over seven months. Since early February, the futures price has improved by nearly a $1 per bushel. Cash prices at the soybean processing plants in Mankato, Minn., topped $9 per bushel during the week of April 11-15, which was the first time at those price levels since late August 2015. Prices at local grain elevators also saw considerable improvement, with local cash prices in a range of $8.60-8.80 per bushel across southern Minnesota. This type of rally in the soybean market was not expected, considering the USDA estimate for soybean ending stocks for 2015-16 is at largest amount in over a decade.
The rise in corn prices in recent weeks has not been as dramatic as the soybean price increase. CBOT corn futures closed at $3.78 per bushel on April 15, which was the highest closing price for nearby futures in calendar year 2016. The March 31 planting intentions report estimated U.S. planted corn acreage at 93.6 million acres, which would be the third highest in history. Given the expected large 2016 acreage total, along with projected 2015-16 corn ending stocks of 1.86 billion bushels in the April 12 USDA report, a corn price rally of any type seemed unlikely. Nearby CBOT corn futures dropped to $3.51 per bushel following the large USDA planting intentions report on March 31, but have increased by 17¢ per bushel in the two weeks since that report. Local cash corn prices across southern Minnesota were $3.25-3.40 per bushel in most areas, which is still not a very attractive price to most farm operators.
According to the March 31 USDA Grain Stocks Report, there was over 4.33 billion bushels of corn and just over 727 million bushels of soybeans stored on farms in the U.S., which represents about 56 percent of the total corn stocks and 47 percent of the total soybean stocks. There were 670 million bushels of corn and 99 million bushels of soybeans in on-farm storage in Minnesota on March 1, 2016, and an estimated 930 million bushels of corn and 155 million bushels of soybeans still in on-farm storage in Iowa. Based on those figures, there is a considerable amount of 2015 corn and soybeans remaining in on-farm storage, much of which still has to be priced in the coming months.
Farm operators need to pay attention to the current grain market price rally to market any old-crop soybeans that remain in storage, either on the farm or in commercial storage. This is the best soybean price opportunity that we have seen for the 2015 soybean crop since late summer 2015. Given to strong soybean yields in 2015, a local soybean market price near or above $9 per bushel is probably at or above the 2015 breakeven price for soybean production in most areas. Unfortunately, a local corn price near $3.40 per bushel is probably still well below the 2015 breakeven price for most corn producers in the Midwest. However, they need to evaluate the current corn price offering against the risk of potential price declines for “old crop” corn in the coming months.
The local price basis, which is the difference the CBOT futures price and the local cash price, has remain quite wide for both corn and soybeans. The local basis for corn prices has been 40-50¢ per bushel at most locations across southern Minnesota and northern Iowa, except at grain terminals, with even wider basis levels in western Minnesota and the Dakotas. Similarly, soybean basis levels in the same region have been at 70-90¢ per bushel, and about 50¢ per bushel at the soybean processing plants. It will be hard to achieve much basis improvement in the coming months, considering the large projected U.S. supply of corn and soybeans for 2015-16. About the only scenario that could tighten the basis would be development of a fairly major U.S. drought during the 2016 growing season.
Another reason to pay attention to marketing the old-crop corn and soybeans that are in storage is that cash grain prices tend to decline as summer progresses, especially in years with large U.S. grain supplies. About the only exception to this in the last two decades is when we have a major drought, or some other major event to cause a sudden rise in prices. According to grain marketing data from Iowa State University, local corn and soybean prices have increased or decreased about 50 percent of the time during May and June. However, during the months of July and August, the percentage of declining corn and soybean prices increases to 60-80 percent of the time, with an average decline of about 7-10 percent.
During spring planting season many crop producers tend to put grain marketing decisions on the back burner; however, this may be a year to pay close attention to grain market changes during planting season. The soybean market appears to be offering some very favorable pricing opportunities for any remaining 2015 soybean inventory, as well as to begin pricing the anticipated 2016 soybean crop. While cash corn prices for the 2015 corn in storage may not be as favorable at this point, producers need to watch the market closely to take advantage of price rallies, even if it means taking a slight loss on the 2015 crop. There could be some possibility of further price enhancements this summer for old-crop grain if drought conditions develop in the U.S.; however, there is also the possibility of rather significant price declines, if the 2016 crop prospects look favorable.