Published: March 13, 2008 11:15 am            

Grain Angles: Corn, soybean markets explosive

Originally published in the March 7, 2008, print edition.

The corn and soybean markets continue to be explosive. The trend is our friend in this case and the trend continues to be higher. The troubling part of this market is that it does not show any sign of weakness. The corn and soybean trend began in early October and has been up every day since, but we all know that nothing lasts forever.

The price discovery period for Revenue Assurance and Crop Revenue Coverage policies ended Feb. 29. The corn average was $5.40, up from last year’s price of $4.06. This is a 33-percent increase over 2007. The soybean price ended at $13.36, a 65-percent increase over last year’s $8.09.

Depending on the level of coverage taken, insurance levels will be about $700 for corn and $500 for soybeans. It will be important to discuss the level of coverage and the revenue guarantee that can be achieved this year with your crop insurance agent.

Another factor that is used in determining the premium is the volatility factor, which was set the last five days of February. The volatility is high compared to other years. Premium charges for these products will reflect the revenue and volatility changes for 2008.

The last two weeks have seen corn future prices rise another 30 cents. March corn futures are trading near $5.46, with July at $5.68 and new crop December futures at $5.64. The market is concerned about acreage for the 2008 growing season.

A private firm recently estimated the corn acreage at 84.7 million acres. The market will spend all of March trying to “dial in” an acreage number to the future price of corn. Based on this estimate, and using the trend-line yields, there will not be enough corn to meet demand. The market is not trading far from $6 and that seemed unreasonable a couple months ago. Is the next level $6.50 to $7?

The soybean market is on fire. March soybeans have gained $1.49 in the last two weeks to trade at $15.22. July soybeans have gained $1.44 and are now at $15.46. New-crop November soybeans are trading at $14.26, up $1.09 in the last two weeks. The price of a barrel of crude oil is at all-time highs, playing into the soybean market. The price of soy oil and other edible oils are also high, providing support to the soybean market.

The private estimates for soybean acres are in the 73 million acre range, up from early estimates of around 70 million acres. A 73 million planted acre crop will help produce a crop that is larger than demand if a trendline crop is grown. The supply of soybeans will continue to be tight regardless of the final production.

The million-, even billion-dollar question is: When will the corn and soybean markets correct themselves, and to what level? It does not take long to look to the wheat market and realize the market can correct. The market can become even more volatile as it appears with wheat. Taking care of the things that are in our control is the only way to combat this extreme volatility. What profit margin is satisfactory?

        

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