Published: August 21, 2008 02:57 pm            

Grain Angles: Crop guessing game on until January

Originally published in the August 22, 2008, print edition.

The August U.S. Department of Agriculture crop report surprised a few with a larger-than-expected corn crop and a smaller-than-expected soybean crop.

The guessing game will go on until the final crop report in January. There is no question that the crop has developed better than was expected given the spring and early summer weather.

The Minnesota crop looks to be in great shape for both corn and soybeans. Judging by the new crop basis bids, the buyers are not overly concerned about the supply of corn or soybeans. The projected supply of soybeans appears to remain tight and corn supplies are building.

The corn and soybean markets have given us a range that it appears the market will trade in. We can learn that new crop December corn has traded in a range of $7.96 to $5.20 this summer. November soybeans have traded in a range of $16.33 to $11.75.

The sell-off was quick and the rebound since the USDA report has been just as quick. The ranges that have been set should be helpful to develop a marketing plan. It will be important to know how much the market rebounds and then make sales accordingly.

We know that it will take something major to blow off the top and a larger crop to push through the lows that have been established. A plan could be set up based on how much of the sell-off has been recovered.

Should sales be made at a 30-percent rebound or 50 or 60 and so on? The old rule of thumb was to have 60 percent of expected production sold by this time of year. Many are sold much stronger than that and many do not have enough sold.

Bearish news and a bullish market response should be a bullish sign for corn. The soybean supply is tight and it is expected this market will remain strong until South American news begins to be felt in the market.

The Twin City basis levels have improved in the last two weeks. The river shippers are looking for grain, and basis is one way to attract corn and soybeans. The south central Minnesota market is showing old crop corn basis improvement but the new crop basis remains steady in the last two weeks. The southern Minnesota soybean basis remains steady for old and new crop soybeans.

The new crop basis levels may not improve much if the crop is as good as it looks and demand remains similar to what it has been. It will be important to do a lot of homework on basis levels and grain bids because it appears that it is not business as usual.

The market is volatile and shows no signs of changing which is going to make it important to spend some time doing enterprise analysis and cost of production projections for the 2009 crop.

It is obvious what has happened to fertilizer costs because much of that has been contracted already. We do not know the full impact of all the other costs associated with grain production with rent getting most of the attention. The recent wild swing in grain prices pushed the cash price below the cost of production for both corn and soybeans in 2009.

The ability to manage the margin in grain production is going to be crucial going forward. What type of margin is acceptable in 2009 and beyond? What types of marketing tools are needed to be used to ensure the margin is there in a volatile environment?

        

• Click to discuss this story with other readers on our forums.