There's a lot to do in the spring, but with crop prices mostly low, you might want to put marketing duties on the back burner. However, some of these tasks, like planting, require timeliness.
Here's a checklist to consider now.
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Be sure to get a call back from your grain distributor or broker, especially if you have futures or arrival hedge contracts related to May corn or soybean futures. The first notification date for nearby areas is April 30th, so you've likely already talked about this, but talking and doing are two different things. Additionally, if no action is taken, physical deliveries and futures liquidation may occur.
One alternative is to roll the position forward. However, any decisions must be made on a case-by-case basis, including both what is realistic at this time and expectations of what will happen for the rest of this spring and summer.
Immediate cash flow needs may make delivery desirable, and as well as the anticipated benefits of expanding storage space, an often overlooked issue must be considered in the equation: cost. On-farm storage is easy to minimize, especially if expenses are paid and debt-free, even if it is not good accounting practice. But the cost includes more than the energy to keep air in the grain and the effort to monitor conditions.
Higher interest rates increase this burden, whether the bill comes from a bank loan or from a risk-free investment in parking cash received from the sale of goods. The interest rate on agricultural loans is roughly the same as the “prime rate'' of money center banks, which it charges to its best corporate customers. Prime rates have remained unchanged since last fall, when the Federal Reserve reported an average rate of 8.5% to 9%, although individual rates can vary depending on the source, such as the equipment company, or when the fixed-term debt was introduced. There is sex. However, with approximately 5.5% holdings in short-term Treasury bills backed by the “full faith and credit” of the U.S. government, cash financing could be an attractive alternative to cash grain.
Consider how CME Group, the owner of CBOT, calculates for commercial grain companies. The rate is about 7.5%, 1% lower than Prime, but there is also an additional $13.25 per day facility storage fee per 5,000 bushels. contract, or 8 cents per month. Some elevators also charge farmers this fee. Many local elevators have less than this, but this is a standard that makes off-farm storage economically unstartable most years.
Those who hold grain in these commercial properties typically do not expect cash prices to rise, and the elevators themselves are usually prohibited from taking such risks, so if their holdings decline Failure may occur. Instead, this grain is hedged, limiting its exposure to basis fluctuations. The hedger also adds the spread between the nearby contract and the contract for subsequent delivery. This is enough to almost guarantee a profit for several years.
For corn, this “carry” for May through July settled at 10 cents on Friday, less than 6 cents per month, while for soybeans the difference was 12.75 cents, or less than 8 cents. Neither was at all enough to pay just the equipment fees, not to mention his two months' worth of interest on about 5.5 cents per bushel for corn and 14.6 cents for soybeans. .
place, place
Of course, there are gains from basis increases and such, but that's where the local market is dominated. Such a rebound can occur when demand spikes, but the opposite can also occur during periods of extreme cold, reflecting seasonal concerns. This can be a double-edged sword as end users can become nervous or desperate to pay their bills when bad weather restricts the flow of grain. For example, if conditions in the Mississippi River system prevent grain from being shipped to exporters in the Gulf and the bins are full.
Spring flooding can be a trigger, and so can farmers. When growers are as busy as they are now, a premium may be needed to persuade them to focus on moving grain. The opposite is true during harvest, when the pipeline is filled with a rich supply of new crops.
Transport costs for fuel, rail cars, barges, or trucks are also taken into account, which vary by mode, origin, and destination. As we know, diesel is expensive, but it could be a little cheaper on the spot market than it was last year, depending on whether deliveries are made from a terminal or through a local intermediary. And agricultural demand is an important variable in spring and fall fuel demand. Rail transport differs between short-distance lines and lines offering unit trains, both of which will be slightly more expensive this spring than in 2023.
Barge fares have gotten much cheaper over the years, but this is also a double-edged sword. While corn shipments have increased by a third so far this year, total sales, including unshipped quantities, have declined, with total exports down about 44%. The opposite pattern holds true for soybeans, but to a lesser extent, approximately 9% to 12%, respectively. As a result, waiting times and costs are significantly reduced for barges transiting the Mississippi system, but the problem remains that reduced water limits tow size at the southern end of the “Big Muddy.” Few places in the north are at or near flood stage. drought monitor We're looking at dry conditions in parts of the southern and western parts of Iowa and most other states.
Corn bids are weak
On a national basis, these variables are summed. Nearby average bid price for corn. US corn price index and US soybean price index Corn base is shown to be about 3 cents cheaper than average, while soybeans are 3 cents higher. These reflect overall supply, which in turn is influenced by demand so far in his 2023 production and marketing year.
Usage data is released only four times a year. quarterly grain stocks, referring to this “disappearance.” Corn inventories as of March 1 were up 13% from last year, the highest since 2021, helping to explain the weak base. Soybean inventories increased by 9%, but were lower than in 2022. Both could change depending on the situation in Brazil. Brazil's second corn harvest is underway, and soybeans are flying off the shelves heading to China.
Also important is who owns the remaining inventory in the US, which also varies by region. On March 1, on-farm stocks of corn and soybeans were up 24% nationally, but off-farm supplies were down 1% for corn and 3% for soybeans. This means there will be less grain in the “strong hands” of commercial hedgers and more grain owned by farmers and unhedged, potentially flooding the market at some point. This could be earlier than planting is completed or later, such as on August 31st, the end of the marketing year, when boxes are cleared to make room for harvest. There is also gender.
Regional differences are also worth noting. Farm inventories are higher in nearly every state than a year ago, with most states up at least 5% and some corn states, such as North Dakota, up more than 13%. However, the increase was small at the edge of the corn belt. Ohio's total corn inventory on farms was only 2.6 percentage points higher, with Michigan at 2.4 percent, Minnesota at 2 percent, and Nebraska at 3.8 percent.
Soybean growth rates exceeded 14% in Michigan and Kansas, but the percentage of farms decreased in North Dakota due to heavy rotation.
Shipping questions
Another indicator worth noting is U.S. grain inventories. Delivery possible locations and the actual total is Registered For delivery – May be installed during the May delivery cycle (May 1st to May 16th). At the beginning of last week, deliveryable supplies increased year-on-year, by two-thirds for soybeans and more than double for corn, with more arrivals than shipments late in the week.
There were fluctuations in the registration amount, but that can change quickly. As of late last week, only 10 lots of corn had been registered, and 499 lots of soybeans along the Illinois River.
Companies with positions in May peaked after rolling through March and then steadily reduced their positions in April, with approximately 350,000 shares in soybeans and nearly 650,000 shares in corn. holds the position of As of Friday's open trading, the May corn open rate had fallen to $140,606, seven times higher than last year's level. In the case of soybeans in May, the number of openings was 78,428, 3.5 times that number.
The first notice date of April 30th and next-day delivery start may not be the only talk in the market. The day coincides with the Federal Reserve's upcoming monetary policy meeting, which could impact both overall sentiment and the cost of holding grain.
The Fed is widely expected to keep its benchmark short-term federal funds target steady at a range of 5.25% to 5.5%, but both the central bank's statement and Chairman Powell's comments at a press conference have left the stock and bond markets at risk. may cause volatility. And the currency also spills over into corn and soybeans. Corporate profits for large companies remain strong, but persistent inflation shows little sign of cooling quickly, if at all.
While a surprise rise in grain prices may be the beginning of a pricing opportunity, downdrafts should not be ignored either. These strengthen the fundamentals of both old and new crops and may lower the cost of call options for those interested in purchasing this price insurance.
There's plenty to see during this busy time, whether you're sitting in your office or in the cab of your tractor.
