LAKE CRYSTAL, Minn. — Many farm operators will tell you that making grain marketing decisions is one the hardest parts of farming. This is especially true during times of highly volatile markets such as have been occurring in recent months.
In early January of 2023, December corn futures on the Chicago Board of Trade (CBOT) were trading above $6.00 per bushel, which was the highest level of December corn futures in January, prior to Spring planting, since 2012. Since this was still at profitable level for many corn producers, it seemed to be a signal to forward price a portion of the anticipated 2023 corn crop. However, farmers remembered a year ago in 2022, when December corn futures in January prior to planting were trading just above $5.50 per bushel and by late April had risen to $7.50 per bushel. Every year is different, and after starting the year above $6.00 per bushel in 2023, the December corn futures price dropped to near $5.00 per bushel by mid-May.
Similar to corn, CBOT November soybean futures prices were trading near $14.00 per bushel in early January of this year, which was the highest pre-plant price for November soybean futures since 2011. By mid-May this year, the November futures price had declined to below $12.00 per bushel, which was the first time that the “new crop” November soybean futures price had dropped below $12.00 per bushel since early in 2021. The sustained higher soybean price levels from 2021 to early 2023 were at the highest levels since the period from 2011 to 2013.
Both corn and soybean prices rose significantly in 2021 and 2022, with the higher price trend continuing into early 2023. The higher corn and soybean prices from 2021 until early 2023 were driven by a combination of grain stocks adjustments by USDA, lower than anticipated U.S. corn and soybean production levels, and very strong export demand for both commodities. Local supplies of both corn soybeans for end users have been very tight at times in the past two years in some portions of the U.S. Both the “new crop” futures prices and cash prices for the 2023 corn and soybean crop declined considerably during March, April and May, due to anticipated increases in production in 2023, along anticipated weaker export demand for corn and soybeans in the 2023-24 marketing year. The potential for a growing drought area in some portions of the Corn Belt in 2023 has resulted in a return to a more “bullish” nature in the commodity markets since the beginning of June.
The nearby CBOT corn futures price has exceeded $5.00 per bushel since early 2021 and was above $6.00 per bushel for most of 2022 and the first few months of 2023. From 2015 through 2020, nearby corn futures were below $4.00 per bushel for a high percentage of the time. The last extended period of higher levels of CBOT corn futures prices occurred from late 2010 through 2013. Nearby corn futures rose above $5.00 per bushel in September of 2010, exceeding $6.00 per bushel by early 2011, and going over $7.00 per bushel by June of 2011. Corn futures stayed strong in 2012, only briefly dipping below $6.00 per bushel, before reaching the all-time high of $8.38 per bushel during the intense U.S. drought conditions in August of 2012. Nearby corn futures stayed above $7.00 per bushel for the balance of 2012 and remained above $6.00 per bushel for most of the first half of 2013, before dropping significantly in the second half of 2013, ending the year near $4.25 per bushel.
Similar to corn, the nearby CBOT soybean futures price has been above $13.00 per bushel since the beginning of 2021, exceeding $14.00 per bushel nearly all of 2022 and the first four months of 2023. Prior to late 2020, the nearby soybean futures price had not exceeded $12.00 per bushel since late Summer of 2014. From 2015 through early 2018, nearby soybean futures traded between $9.00 to $10.50 per bushel, with a brief period above $11.00 per bushel in early Summer of 2016. From mid-2018 through mid-2020, nearby soybean futures traded below $9.00 per bushel most of the time, due to export market implications resulting from the U.S. trade war with China. Since the China export markets returned to more normal patterns in mid-2020, soybean futures have remained above $10.00 per bushel.
Local grain elevators, ethanol plants and processing plants generally set their bid prices based off the CBOT futures price for a corresponding month. The difference between the local cash price being offered in a given month and the closest CBOT futures price is known as “basis”. The basis levels for both cash corn and soybeans have been at very tight levels most of the time in the past two to three years. In fact, there has been a positive basis for both corn and soybeans on several occasions at many processing plants and local elevators in portions of the Upper Midwest. This situation does not occur frequently in the region and usually does not last this long.
For example, there has been a positive basis above the corresponding CBOT futures price for cash corn very consistently in Southern Minnesota in 2022 and early 2023. The soybean basis level at regional processing plants for cash deliveries has also been very tight and even positive may times in the past 18 months. In the five-year period from 2016-2020, corn basis levels in May and June in Southern Minnesota typically ranged from $.15 to $.25 per bushel under CBOT prices. Soybean basis levels at processing plants during the late Spring months in those years ranged from $.40 to $.60 per bushel under the CBOT futures prices, with even wider basis levels at local grain elevators.
For many farmers, the major marketing focus in the past couple of months has been to try to “lock-in” favorable prices on the 2023 corn and soybean crop, which has been difficult. The “new crop” CBOT December corn futures declined from near $6.00 per bushel in early January to near $5.00 per bushel by early May. Local ethanol plants and grain elevators in Southern Minnesota were offering forward contract corn prices for harvest delivery of the 2023 crop in the $4.60-$4.90 per bushel range during May, which is about $2.00 per bushel lower than “new crop” cash corn bids a year ago at this time in 2022. From June 1 to 16, the CBOT December corn futures price and local “new crop” cash corn bids have improved by $.70-$.80 per bushel, due to the growing drought area in many portions of the Midwest.
Like corn, the 2023 “new crop” CBOT November soybean futures price started the year above $13.50 per bushel but declined to near $11.50 per bushel by late May, with local “new crop” cash prices in Southern Minnesota dropping below $11.00 per bushel. From June 1 to June 16, soybean contract prices for Fall delivery in Southern Minnesota rebounded to $12.00-$12.40 per bushel at local grain elevators, with prices typically $.20-$.30 per bushel higher at soybean processing plants. The basis level for 2023 “new crop” soybeans has generally been $.35-$.45 per bushel below the CBOT November futures price.at processing plants and $.50-$.60 per bushel below at grain elevators.
In addition to the other grain marketing factors that a farmer must consider, weather and production are also part of grain marketing decisions. A producer likes to make sure that they will have the bushels to sell before they forward contract the grain from the crop in the field. This can be difficult in a year such as 2023, when many areas of the Upper Midwest were impacted by late planting dates. In addition, very hot and dry conditions in June are raising concerns regarding potential drought conditions that could impact crop yields later in the growing season. This can make it difficult for farmers to lock-in prices on a high percentage of the anticipated 2023 production, even though we may get some very favorable “new crop” prices for corn and soybeans.
Making grain marketing decisions for this year’s corn and soybean crop has been very challenging for most of 2023. Due to much higher crop input costs and land rental rates in 2023, the breakeven market price for many producers at average crop yields is probably near $5.50 per bushel for corn and $12.00 per bushel for soybeans. There have been very few opportunities to “lock-in” local cash prices at or above those levels since early in 2023. If the drought conditions continue, corn and soybean prices may return to more profitable levels; however, this may also mean more uncertainty for 2023 crop yields in some areas. If a major drought does not develop in 2023, corn and soybean prices are likely to follow a more typical seasonal price pattern as we progress toward harvest.
— Kent Thiesse, Farm Management Analyst and Sr. Vice President, MinnStar Bank