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Market Commentary for 10/2/23

Jon Scheve with weekly market commentary made on September 29, 2023

On Friday, the USDA reported last year’s ending stocks. It showed less total corn stored in the US, but the percent of corn stored on the farm was much higher than last year. The trade is assuming most of that on-farm corn is still unpriced and will likely be moving into the market as harvest approaches.

US soybean stocks were also higher, and like corn, there is more stored on the farm than last year. Unfortunately, the low river situation is not improving, so getting exports out of the US quickly is difficult. This could keep prices from going up in the short term.

Early field reports I’m seeing suggest corn yields are better than expected and may be higher than the estimates shown on the USDA September report. Bean yields are still uncertain until more is harvested this coming week.

Corn Price Direction

Corn has traded at some point in a very tight range between $4.77 and $4.89 every day since August 11th.

However, with a lot of corn still stored on the farm, a slow export pace, and a large crop starting to be harvested, December corn can still go lower.

In the last 35 years, corn’s stocks to use ratio has gone from very tight to adequate in one growing season, like we are experiencing now, several times. When it has happened, there was usually at least a 30% drop in prices from the highest posted value of the year to the lowest posted price in the fall.

The year most similar in price action to 2023 seems to be 2013, which also followed several years of tight stocks and high prices. I have included 1996 and 2004 for reference too.

The chart above shows that in years when there is a big increase in stocks, prices tend to drop until the end of the year. Therefore, it is possible corn could continue to go lower over the next two months. A price of $4.40 should not be ruled out, and $4.20 is plausible too. What to Store at Harvest With harvest nearly in full swing across the US, many farmers are asking me “which crop should I store if I am limited on space?” My farm operation has over 100% on-farm storage capacity, and I highly recommend most farmers should be as well. Having 100% on-farm storage capacity not only simplifies harvest storage decisions and increases flexibility, but it also allows for more low-risk opportunities to maximize profit potential. Despite the benefits, many farmers are still resistant to having more storage for a variety of reasons. Therefore, those farmers will need to analyze their own unique situation to determine what is more profitable for them to store at home. Following is what I think a farmer should consider: Consideration #1 – Interest on an Operating Note The cost to not pay your operating note off and continue holding grain in storage is probably the most important consideration when deciding which crop to store. It is calculated by taking the loan’s interest rate against the cash value of the grain being stored. For example, with a 1-year operating loan interest rate of 8%, multiplied by the cash values of each crop at harvest (let’s assume $4.80 for corn and $13 for beans), divided by 12 for a monthly rate, and the cost per month to store corn is 3.2 cents per bushel per month while beans are 8.6 cents per bushel. Since the cash value of beans is always much higher than corn, the interest cost to hold beans will always be higher, making corn usually the better crop to be stored. Consideration #2 - Basis Basis is the difference between the price on the board of trade and a local cash bid. Right now, corn and bean basis values throughout much of the corn belt are relatively close to the same levels. However, due to low water levels bean basis values for farmers near the Mississippi River may be heavily discounted. That could mean there may be as much as $1 per bushel of upside potential later in the marketing year along the river, which would favor storing beans over corn in those select areas. Consideration #3 - Beans Export Timetable Most beans are exported out of the US during the winter, with the highest demand being October through February. Most corn exports happen after beans are gone, so logistically storing corn may mean more basis profit potential down the road. Therefore, a farmer may not want to store their bean crop if it will be shipped out just two months later verses the potential from increased basis levels on corn in spring or early summer. Consideration #4 - Income Needs Sometimes farmers need end of year income to offset expenses. Since bean values are always higher, more income can be generated moving beans verses corn. Consideration #5 - Logistics A bin holds 7% more corn than beans on a per bushel measurement. Plus, most producers say it is easier sending trucks directly to the processor or elevator during bean harvest, than managing logistics of long lines during corn harvest. What About Futures Values? Contrary to what many farmers think, futures values, or the potential of price action, does NOT matter when deciding which crop should be stored. That is because farmers can always sell grain for cash, and then immediately re-own futures in a brokerage account and maintain the same downside risk and/or upside potential. Basically, the risk is nearly the same to have unpriced grain in a bin as having a long futures position in a hedge account. The only difference is that selling for cash at harvest, and re-owning it, eliminates any basis or spread opportunities that could increase a farms profit potential. But delivering the grain, setting basis, and collecting the money immediately does stop the interest costs on the crop. Bottomline: For those with limited space, the interest cost alone usually makes it more beneficial to store corn over beans. However, it is still a good idea to walk through all the considerations each year to make sure you are making the best decision for your farm operation. Having 100% on-farm storage is almost always a better decision. Not only does it take the storage decision guesswork out of your grain marketing strategy, but it also makes it easier to maximize a farm operation’s profit potential through basis and market carry opportunities too. Please reach out to me if you would like to discuss which crop you should be storing this harvest.

Jon Scheve Superior Feed Ingredients, LLC

9358 Oak Ave Waconia, MN 55387


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