Kub's Den

By Elaine Kub
DTN Contributing Analyst

Soybean prices -- yuck. The National Soybean Index, an average of all the cash bids collected by DTN across the country each day, was $7.32 per bushel Tuesday. It's all I can think about, and all anyone asks me about whenever they want to discuss the grain markets. I am sick to my stomach dreading the upcoming expense and effort of harvesting 2018 soybeans that are worth only $6.80 per bushel at my local elevator. (I farm in north-central South Dakota, where the soybean basis has traditionally only ever sucked the crop west by rail toward ultimate Asian destinations, but this year is just sucking them into a void.)

The gloominess of all this is so overwhelming, I almost failed to notice something surprising about corn. Corn prices are (Dare I say it?) not bad! Not compared to last year at this time, anyway. The National Corn Index, an average of local cash bids across the country, was $3.23 per bushel Tuesday. On September 11, 2017, when the country was bracing for an almost-identically large expected harvest, it was 10 cents lower at $3.13 per bushel.

Meanwhile, the U.S. government's "Market Facilitation Program" is promising farmers some payments to soothe our soybean market anxieties -- $1.65 per bushel on 50% of total 2018 actual soybean production, or to put it another way, 82 1/2 cents per bushel on 100% of 2018 soybean production. This doesn't make me feel any better. I'm sure I'll deposit the check, and my banker will be grateful, but seeing the numbers written out just crystalizes for me how damaging this trade war and all the mutually destructive tariffs have been. I'll say it again: Soybean prices -- yuck.

What does make me feel better is to see those corn prices actually stronger this year than last year and stronger than many recent years. Early September prices are better than they've been since 2015. Nothing to write home about, but there are those 10 cents between the NCI of September 11, 2017, and the NCI of September 11, 2018. 10 cents is 10 cents. It's likely the difference between slim profits or losses this year for many farmers. On the half of their acres they planted to corn, anyway.

The relative movement of corn futures prices and basis bids seem to be in line between last September and now. December 2017 corn futures last Patriot's Day were $3.57 per bushel. December 2018 corn futures closed Tuesday at $3.67 -- that same dime of difference from one year to the next. Midwestern ethanol processors are bidding somewhere in the range of 30 cents under the December contract for quick-ship corn, which is pretty normal for this time of year. The average country elevator bid on Tuesday afternoon was 44 cents under the December contract. On September 11, 2017, the average basis bid was also 44 cents under the December contract.

For even more comforting context, here's a reminder of the prices that have been available off the combine in early September and into the harvest timeframe during the past five years.

-- 2017: September started with the National Corn Index at $3.08 per bushel, and the cash market stayed mostly flat through harvest, never dipping below $3.00 until November 15.

-- 2016: September started with the National Corn Index at a panic-inducing $2.83 per bushel, but corn prices trended upward through the end of the calendar year (the NCI was $3.15 on December 30).

-- 2015: Early September saw the NCI at $3.36, and the market actually held up well throughout harvest, with the cash index staying in a sideways range between $3.35 and $3.65.

-- 2014: September began with the NCI at $3.37, but harvest pressure caused cash corn prices to slide 56 cents during the month, landing at $2.81 per bushel on October 1.

-- 2013: That was back in the good ol' days of five dollar corn. The NCI was $5.55 per bushel on September 3, but rapidly fell toward $3.95 by November 18.

So, December corn futures at $3.66 this Wednesday before the September crop report is released and average basis at 44 cents under futures -- these opportunities aren't that bad, really. We have demand to thank for that, and demand for corn is strong both domestically and internationally. Every major category of corn demand, except for exports, is projected to be stronger in the 2018-19 marketing year than it was in the previous marketing year. Export demand projections could easily earn that honor, too, in future updates to the USDA's official supply and demand tables.

Corn, sorghum and wheat producers will get some of that Market Facilitation Program money, too -- a penny per bushel on 50% of 2018 corn production, 86 cents per bushel on 50% of 2018 sorghum production and 14 cents per bushel on 50% of 2018 wheat production. In the context of today's corn prices, which look reasonable compared to similar years with large production prospects and strong demand outlooks, that penny per bushel seems like a generous acknowledgment.

The real question, of course, is: How much stronger could corn prices have been without the cheaper soybean meal prices and the natural soybean-to-corn price ratio dragging all feed grain prices lower, without the simultaneous worries of an unstable trading relationship with Mexico and China, or without the overall sense that there just won't be enough space to properly store all these unpurchased bushels of the upcoming row-crop harvest?

Corn prices aren't historically terrible right now. But how much better could they have been? That is something we'll never know.

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.

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The opinions expressed in this column are solely the author's and do not reflect the opinions or views of DTN or its affiliates.

(CZ/BE)

09/13/18
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