The cash price for soybeans went above $9/bu. in the last week of February at local grain elevators across southern Minnesota. This was the first time that the cash soybean price has exceeded $9/bu. since the drought year of 1988, almost 16 years ago. Soybean prices rose by 50-60¢/bu. This is highly unusual, since grain prices are usually pretty “sluggish” in late February. The high soybean prices are being driven by a very tight domestic supply of soybeans, higher than expected soybean usage, and weather problems in parts of Brazil and Argentina.
The near-term “basis” (the difference between the cash price and near-term futures price on the Chicago Board of Trade, or CBOT) for soybeans is extremely narrow. In fact, there have been a few days with a “positive basis,” meaning the local cash price for soybeans was actually higher than the CBOT near-term futures price. This is extremely rare, and is usually a signal to producers to sell cash soybeans, or to use a “basis contract” to lock-in the basis. If producers are still “bullish” about further strength in the soybean market, they may want to consider selling cash soybeans and owning the soybeans with futures contracts. However, if they are satisfied with cash prices of well over $9/bu. for the 2003 crop, they may want to focus on sales opportunities for the 2004 soybean crop. New-crop prices for the coming crop at local grain markets were near or above $7/bu. in late February.
CORN PRICES ALSO STRONG
Cash corn prices have also been quite strong in recent weeks, although not nearly as dramatic as the sudden rally in cash soybean prices. Local cash prices for corn were above $2.70/bu. in southern Minnesota in late February. That’s quite a bit higher than the $2.10-2.20/bu. estimates that many corn growers used a year ago as the projected 2003-crop corn price. The basis for cash corn prices compared to CBOT near-term futures is fairly narrow for late February, although not nearly as tight as the near-term soybean basis. There seems to be a fairly significant amount of 2003 corn that is not priced yet. Most producers had above-average corn yields last year, and being able to sell at prices that are 50-60¢/bu. above projections seems like a very profitable management strategy. Again, it may also be a good time to be aware of opportunities to begin pricing the 2004 corn crop. New-crop prices for corn at local grain markets were in the $2.50-2.60/bu. range in late February.
CCP REPAYMENT LIKELY
The continued strength in the corn market has almost made it certain that the 7.7¢/bu. advance counter-cyclical payment (CCP) that producers received last fall on the 2003 corn crop will need to be repaid after Oct. 1. CCPs are based on USDA’s projected season average corn price, from Sept. 1, 2003 through Aug. 31. CCPs are earned when the national average corn price drops below $2.32/bu. That’s well below the current projected national average corn price for the 2003 crop of about $2.50/bu. The required CCP repayment will not require checks from producers, but will likely be deducted from future DCP Direct payments from county FSA offices.
Editors 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 [email protected].