The daily volatility of the corn and soybean markets has not subsided.
The trend the last two weeks has been higher. The trading range on any given day has been large. The outside influences of the market continue to move the market which is not always based on supply and demand.
The value of barrel oil and the strength of the dollar are important to the market. The market will continue to factor in the size of the crop with most believing that the crop will be smaller than the U.S. Department of Agriculture numbers on Aug. 12.
The movement of grain prices over time is important to our marketing and overall profits this year and as we look ahead to 2009 and beyond. It is getting more important every time rent or the cost of another input goes up. There is no question rent is in a steep uptrend; numbers that were unfamiliar to southern Minnesota grain producers are becoming common.
Most of the inputs that have been purchased and will be purchased for next year are much more expensive than we are used to.
The stakes for 2009 are extremely high with harvest a full year off. The idea of margin management is of great concern. Most of us have access to a cost calculator and sensitivity table to help predict what margins are looking like next year. Simply changing rent or any one of a number of costs will help us understand what is happening to margins, they are shrinking dramatically. Some of the costs of production we can control and many we cannot but it is imperative to control those we can.
The December 2009 corn and soybean futures, coupled with the new crop basis levels that are being quoted, put margins right at or just above breakeven. There is no way to know what will influence the market over the next year but it is important to not get carried away with inflated input costs that we can control.
The corn and soybean futures have rebounded nicely since the Aug. 12 report. December corn has traded back near $6 and November soybeans back over $13. I do not want to sound like a broken record but it is important to understand the trading range we are in. It appears that support was established for corn between $5.20 and $5.40 while soybeans have support around $12.10 to $12.20.
If the market starts to trade a larger crop as the September USDA report approaches these lower limits become important. Managing the margins becomes important even 12 to 13 months ahead of harvest. Variable costs become fixed as they are paid for thus there is less and less that can be done to manage the margins. The high futures price can be deceiving because of our wide basis levels. A thorough study of the cost of production is going to be as important if not more than the marketing plan for 2009 and probably 2010.
The explosion of production costs has changed the game. A solid analysis of all costs will lead to a better marketing plan. What is your cost of production and how do you achieve an average sale price to cover all costs?
Grain Angles is written by Dennis Kelly of LeCenter, Minn.