February 19, 2018
CROP PRICES SHOW SOME STRENGTH
Soybean prices have been a pleasant surprise during the early weeks of 2018, with both Chicago Board of Trade (CBOT) futures prices and local cash soybean prices at considerably higher levels than were expected a few months ago. Many farm operators have already sold their 2017 soybean production; however, for those producers that still have 2017 soybeans in storage, this may be a good time to price some of the remaining inventory. The current price levels also suggest that it may be an opportunity to consider pricing a portion of the expected 2018 soybean production.
Current CBOT soybean futures closed at $10.24 per bushel on February 15, which was slightly lower than $10.43 per bushel at this point in 2017, but well above the $8.79 per bushel in mid-February, 2016. Similarly, CBOT November soybean futures ended trading at $10.23 per bushel on February 15, which is at almost the exact level that existed at this time a year ago, and compares to near $8.90 per bushel in 2016. The soybean market scenario thus far in 2018 has been very similar to 2017.
Local cash soybean prices in Southern Minnesota have shown a similar scenario, with current soybean prices near $9.35-$9.75 per bushel, which compares to $9.40-to $9.90 a year ago, and $8.00-$8.40 per bushel at this time in 2016. Current “new crop” prices in Southern Minnesota for the 2018 crop have been near $9.35-$9.65 per bushel, again similar to 2017 price levels, but well below mid-February “new crop” soybean prices of near $8.25 per bushel in 2016. In 2017, local “new crop” soybean prices at the soybean processing plants dropped from near $9.75 per bushel in mid-February to near $8.50 per bushel by late June, which equates to about $65 to $75 per acre for most producers in the region.
The latest USDA Report, released on February 9, 2018, estimated the U.S national market year average (MYA) on-farm cash soybean price for 2017-2018 in a range of $8.90-$9.70 per bushel, resulting in an average soybean price of $9.30 per bushel. The 2017-18 USDA price estimates are the expected average prices from September 1, 2017 to August 31, 2018, for the 2017 crop year, and are not estimated prices for the 2018 crop year. By comparison, the final national MYA soybean prices were $9.47 per bushel for 2016-17, $8.95 per bushel for 2015-16, and $10.10 per bushel for 2014-15.
The current strength in the soybean market has been driven by concerns over 2018 soybean production in South America, especially in Argentina, which has been experiencing very dry weather conditions. Based on the February 9th USDA WASDE Report, the levels of the soybean processing in the U.S. are expected to be higher in 2017-18, as compared to a year earlier; however, U.S. soybean export levels this year are estimated to decline by 74 million bushels, compared to 2016-17. The latest USDA Report listed estimated 2017-18 soybean ending stocks at 530 million bushels, which would be at the highest level in over a decade, and compares to ending stocks levels of 302 bushels in 2016-17 and 197 bushels in 2015-16.
There are several “caution flags” with maintaining or expanding the current strength in the soybean market, with the biggest being the projected high level of soybean ending stocks and the final 2018 South American soybean production. The other big “caution flag” is the ongoing U.S. trade relations with China, Mexico, and Canada, through the NAFTA negotiations and other trade issues. Just under half of last year’s U.S. production is expected to be exported in 2017-18, with China and Mexico being the two largest export markets for U.S. soybeans.
The other “wild card” in the current soybean market, especially for “new crop’ soybeans, will likely be the level of 2018 planted soybean acres in the U.S. The first actual USDA estimates will be released in the March 31st Planting Intentions Report. Many private analysts are estimating 2018 U.S. soybean acreage in the range of 92-93 million acres, which compares to U.S. soybean acreages of 90.1 acres in 2017, 83.4 million acres in 2016, and 82.7 million acres in 2015. An extra 3 million acres of soybeans, would likely increase the 2018 U.S. soybean production by approximately 150 million bushels above 2017 levels, at a “trend-line” soybean yield of 49 bushels per acre. If soybean usage stays the same that would result in even higher soybean carryover levels by this time next year. Most likely, any significant rise in soybean prices later this year will be due to a major drought or other weather problem in the U.S. in 2018.
Local cash corn prices in Southern Minnesota have not been nearly as encouraging as current soybean prices; however, corn prices have shown some improvement in recent weeks. Current cash corn prices in the region were near $3.15-$3.25 per bushel on February 15, which just slightly lower than local corn prices at this point in both 2017 and 2016. Current “new crop” local corn prices for the 2018 crop have been near $3.30-$3.45 per bushel at many locations in Southern Minnesota, with lower levels in other areas, which again are slightly lower than “new crop” corn prices a year ago at this time. USDA is currently estimating the MYA corn price for 2017-2018 in a range from $3.05-$3.55 per bushel, or an average of $3.30 per bushel, which compares to $3.36 per bushel for 2016-17, $3.61 per bushel for 2015-16 and $3.70 per bushel for 2014-15.
In 2017, the local cash corn price in Southern Minnesota remained fairly constant from late January to late June, before dropping significantly to near $3.00 per bushel by late July. Many farm operators have a significant amount of unpriced 2017 corn stored in grain bins on the farm, and need to pay close attention to any potential late Winter and Spring rallies in the cash corn market. The fairly large level of estimated 2017-18 corn ending stocks at 2.35 billion bushels will likely limit any sustained rallies in the cash corn market beyond early Summer, unless there are growing season weather issues with the 2018 corn crop.
Similar to recent years, producers need to look at opportunities to sell their remaining 2017 corn in storage, as well as to forward price some of their 2018 corn crop, either through CBOT futures contracts or with forward cash contracts. In the past four years, the highest “new crop” corn prices have been offered in Spring and early Summer in the year that the corn was produced, and post-harvest corn prices have never topped that level the following year. The last time we saw corn prices rise to higher levels post-harvest was in 2013 following the major U.S. drought in 2012.
It is important for farm operators to develop a good grain marketing plan for both the unpriced 2017 grain that is still in storage, as well as the expected 2018 corn and soybean production. Grain price targets should be based on realistic price expectations, as well as calculated crop production breakeven levels. Producers are also encouraged have target dates that are linked to grain marketing decisions and prices, especially with the unpriced corn and soybeans that are in storage. Historically, in most years with large grain supplies, such as exist in 2018, cash grain prices for “old crop” corn and soybeans usually drop by a fairly significant level after July 1. The price targets need to be continually reviewed and adjusted, as grain market situations change.
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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Senior
Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960);
E-mail — (kent.thiesse@minnstarbank.com)