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Uncertainty in the grain markets

By Kriss Nelson - Farm News editor | May 25, 2021

By KRISS NELSON

editor@farm-news.com

Corn and soybean markets have surged to prices not seen in several years, but should producers be getting comfortable with those numbers?

It is nothing unusual to see volatility in the markets just as when markets dropped significantly earlier this month with the news of the Mississippi River being shut down near Memphis due to a crack found in a bridge that essentially has shut down barge traffic for a time.

“Anytime you cause problems in the transportation system and you can’t move the crop as well as you like, it tends to have a ripple effect that comes back and slaps prices down for at least a short term until it is figured out how we will move the grain again,” said Chad Hart extension grain markets specialist with Iowa State University Extension and Outreach.

When the news of the closing of traffic on the river came out, prices for old corn crop futures dropped nearly 40 cents.

Hart said even with that drop, we are still looking at an incredibly good corn price.

“But it is just one of these deals it shows how quickly prices can move up, but it also reminds us that prices can move back down just as fast,” he said.

There is a big state of uncertainty in the markets right now.

“That uncertainty, for the most part, has been helpful to us in providing the fuel for the price surge that we have seen,” said Hart. “But, we can also see the backside of that uncertainty.”

Advice

Hart said we are heading in to the time of year where producers can expect some of the highest price of the year in May, June and early July.

“This year is definitely shaping up to possibily look that way,” he said. “Especially if we don’t start to see more timely rains. The reason we have been able to push prices into this place of almost $7 cash corn, which is still over $5 as we look at harvest time, part of it is based on the drought here.”

Could we be facing another year like 2008?

Hart said if you look back to prices that year, they are very similar to what we are seeing now. We started the year around $4 a bushel for corn, then saw prices shoot all the way up nearly $8 by the time we got to the mid-year and then back down to $4 by harvest.

Can we repeat that same pattern?

“Give me some rains and dry up a little international demand and we can repeat that in a heartbeat,” he said. “It’s not necessarily we are going to, but I think we need to manage in case we do. That means taking advantage of opportunities the market gives you.”

Hart suggests taking advantage of these price surges – but in a way you are comfortable with because we don’t know what the new crop is going to fully look like yet.

“For some, it may mean forward contracting, but in concert with your crop insurance. That way, what you are saying is you don’t want to market too many bushels that you know you don’t have covered in some way just in case you don’t create those bushels,” he said. “If you market your insurance bushels, if you do happen to over market what you grow this coming year, at least you have insurance to you have some money coming in to help cover the cost.”

Not only does Hart suggest looking to pair your marketing decisions with your crop insurance, but also looking to pair sales of your crop with your input purchases.

“If you know you are going to buy fertilizer in the fall, maybe you want to line up some sales in the fall so that you have that cash flow coming in at the same time you have cashing flowing out when buying those inputs,” he said. “I can look today and decide what that margin looks like and if it is worthwhile to capture or not. This is a way to deal with a cost risk you face. I am balancing my cost and my revenues at the same time so I know where I stand as far as that profitability.”

Don’t over analyze the markets.

“Take advantage of opportunities. Don’t over think it,” said Hart. “I remind people, if you are making a profit on a sale, that is a good sale. It doesn’t matter if the prices continue to go up. We tend to cry a lot about the last sale. I remind farmers, now it’s time to concentrate on the next sale and I always hope your next sale is better than your last sale.”

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