ISU Economist Advises Vigilance in Marketing Grain
September 4th, 2014
AMES, Iowa — Marketing corn and soybeans promises to be a challenge for Iowa grain producers who expect to harvest record crops this fall, according to an Iowa State University Extension and Outreach crop markets economist.
“For both crops, whether you use the futures market or USDA projections, farmers are staring at prices below the ISU estimated costs of production, which are $4.50 per bushel for corn and $11 per bushel for soybeans,” said Chad Hart, an associate professor of economics. “So pricing opportunities are thin.”
New-crop corn prices in central Iowa are in the $3-3.25 range, while prices for new-crop soybeans are in $9.50-10 range.
The last yield report by the U.S. Department of Agriculture estimated a little more than 14 billion bushels of corn production, topping last year’s record, Hart said. Feed, ethanol and export demand were all increased, raising total demand to 13.435 billion bushels. Carryout, the amount left over, would stand at 1.8 billion bushels.
Soybean production was projected to be 3.8 billion bushels. Demand for the 2014 crop was unchanged at 3.54 billion bushels. Carryout was raised to 430 million bushels.
Hart advises farmers to prepare for harvest, ready their bins for storage and work out break-even prices.
“When we do get rallies — and we will, but they will likely be short-lived — farmers need to be ready to pounce. Watch for basis plays as we move towards harvest,” he said.
Basis is the difference between the futures price in Chicago and the local cash price. In marketing crops, producers can make marketing choices that target the futures price alone, the basis alone or the combination of the two (the local cash price).
“With a basis play, producers may wish to base selling choices on the basis alone — the most common choice is a basis contract — to grab a good basis value, while allowing the futures price time for potential improvement,” Hart said.
Exports could bring a bullish surprise for corn.
“For soybeans, exports are already at record levels. Can that record demand continue? For corn, the 2014 export projection is more than 600 million bushels below the record, so there is plenty of room for growth, if the rest of the world could use a little more corn,” he said.