It appears the days of $6 corn prices, and maybe even $5 corn, are behind us for the foreseeable future. Projected significant increases in corn carryover inventories, along with fairly good 2014 crop conditions in many areas of the Midwest, will likely continue to put pressure on both cash corn prices, as well as new-crop prices. The outlook for soybean prices is a bit more optimistic, but new-crop soybean prices could also be challenged, if better-than-expected average U.S. soybean yields are achieved in 2014.
During the few months in 2014, local cash corn prices in Southern Minnesota have been in a range of $4-4.75 per bushel for 2013 corn that was stored, but not yet priced. However, local corn prices have started to drop in recent weeks, dropping by about 35-40¢ per bushel since early May, with a reduction of nearly $1 per bushel from the cash corn prices for the 2013 crop a year ago at this time. A large amount of 2013 corn that is stored on farms has already been forward priced for delivery later this spring or summer. The average market price on 2013 corn for many producers will likely be higher than current cash prices, as a lot of corn was forward priced in the late summer and early fall 2013, before the corn prices started to decline.
Local cash soybean prices in southern Minnesota have remained much stronger in recent weeks, with many locations above $14 per bushel since early April. The strong cash soybean price is being driven by very good demand for soybeans, and a limited supply of 2013 soybeans still available. Similar to corn, many farmers forward contracted or sold a large potion of their 2013 soybean production prior to or during harvest. Many producers sold their 2013 at very good prices; however, at price levels that were lower than the current strong soybean prices.
According to grain marketing data from Iowa State University, local corn prices have dropped during the month of June 50-60% of the time from 2003-2013, with average decline in prices of 7-10%. During the month of July, the percentage of declining corn prices increases to 50-80% of the time, with an average decline of another 5-7%. Based on averages in years such as 2014, current cash corn prices are likely to decline even further in the coming weeks. The Iowa State data for soybeans from 2003-2012 shows that market prices remained stronger in June, before declining 70-80% of the time in July, with an average market decline of 6-8%.
The biggest concern with the recent drop in corn and soybean prices is for the 2014 crop year and beyond. As of June 6, the local new crop price for 2014 corn in southern Minnesota had dropped to $4-4.20 per bushel, and the new crop 2014 soybean prices to $11.50-11.90 per bushel. USDA is now projecting average U.S. on-farm prices for the 2014-15 marketing year at about $4.20 per bushel for corn, and $10.75 per bushel for soybeans. The 2014 USDA crop marketing year runs from September 1, 2014, through August 31, 1015.
The breakeven cost of producing corn in southern Minnesota at trend-line yields will likely be $4.50-5 per bushel for many producers in 2014, and near $11 per bushel for soybeans. Breakeven price levels could rise even higher for producers that experience reduced crop yields in 2014, or for farm operators with higher-than-normal land costs. 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 the producer breakeven prices.
During 2011, 2012 and early 2013, local cash corn prices spent very little time below $5-6 per bushel; however, since September 2013, local corn prices have not risen above $5 per bushel at most locations. Similarly, the local cash soybean price spent most of 2011, 2012, and 2013 at $12-13 per bushel or higher; however, it appears that we could be at $11 per bushel or lower in the coming months. The consistently high cash price levels for corn and soybeans in recent years made grain marketing decisions pretty easy for many producers. By contrast, if we stay at current corn and soybean price levels for the 2014 crop, or drop to even lower price levels, in the next few months, grain marketing decisions will become much more difficult. This will make it more important than ever for farm operators to have a solid grain marketing plan in place, which is part of an overall farm risk management strategy.