June was an active month in the grain markets.
December corn posted a high of $4.31 on June 18 along with March corn at $4.39 the same day. Earlier that week December 2008 posted a high of $4.33. The U.S. Department of Agriculture acreage report released June 29 took everyone by surprise. The corn and soybean acres were not what anyone was looking for but once again the USDA put a new twist on things.
Everyone has anticipated that producers would plant more corn in 2007 because the economics worked well last winter and spring. U.S. producers planted 78.3 million acres of corn in 2006. The USDA said they would plant 90.4 million acres in 2007 with the release of the March planting intentions report.
The June 29 USDA report has surprised everyone with 92.88 million acres of corn planted. This is the largest corn planting since 1944. The large corn plantings, coupled with an average national yield, puts the 2007 corn crop in excess of 12 billion bushels.
The soybean acreage report went in the opposite direction.
The USDA has the soybean acres at 64 million this year compared to 75.5 million acres in 2006. The USDA was anticipating an acreage decrease with the March intentions report estimating 67.1 million acres. This is the largest reduction in acres from the March to June report in recent history.
This has provided some strength to the market. August, November and January soybeans posted highs on July 2. The highs were $8.77, $9.03 and $9.13 respectively.
The soybean acres are much lower than expected, which should provide some fireworks the rest of the summer. Soybeans have always been behind on the 2.5 to 1 price ratio and this could help get them closer to that ratio.
The market will be sensitive to weather the rest of the summer. The current dry weather in many parts of the United States will be something to watch.
The current supply of soybeans is about 600 million bushels and the projection is that the carryout could drop to 300 million bushels.
There is nothing new but the basis levels are taking the luster off the price of soybeans. Basis levels are $1 and higher. Locally the soybean basis improves greatly with January bids.
Minnesota is one of the states that has planted a lot more corn acres than expected. This will be a challenge on the infrastructure this fall. The basis levels this fall could get out of hand because of the supply — and nowhere to go with it.
As I talk to producers they are becoming aware of the basis and how that impacts the price. Word travels quickly when there is a good basis bid out there. It is going to be important to watch the basis and understand the carry in the market. If the corn basis stays narrow this fall it might work out to sell corn and store soybeans until later in the winter. It depends on the carry in corn and soybeans whether you sell or store.
Grain Angles is written by Dennis Kelly of LeCenter, Minn.