Cash prices for the current-year corn crop topped $3 per bushel at elevators in the northeast and southeast parts of Iowa on Monday and Tuesday--October 23 and 24. It was the first time prices had hit $3 since June 2, 2004, according to USDA's Ag Marketing Service and the Iowa Department of Agriculture.

Grain prices usually sag during harvest. This year they've risen. "We've seen corn prices rise at harvest in years when we've had short crops," observes Rich Harves, who farms near Dickens in Clay County in northwest Iowa. "But this is a big crop. Demand is driving this rally."

Strong demand-driven rallies often last longer and can peak higher than short-crop rallies. Users are trying to get hold of grain; they don't want to be left out. Weekly corn exports have been strong, prompted by growth of the ethanol market and livestock producers are bidding for grain. "Users want to tie down their needs as it looks like demand will keep growing next year," notes Harves.

What's driving corn prices?

Entering harvest, farmers expected to store their crop and wait for higher market prices. But in October USDA slashed its estimate of the Australian wheat harvest and trimmed the expected 2006 U.S. corn crop. Those moves propelled cash corn toward $3. Strong prices are predicted for the rest of 2006 and into 2007.

The nation is harvesting an estimated 10.9 billion bushels of corn this year, second largest on record. "Even so, the U.S. corn crop is projected to fall a billion bushels short of expected market demand," notes Bob Wisner, Iowa State University economist.
This news, combined with a projected 34% rise in the amount of corn processed into ethanol this marketing year and an even larger potential increase next year, will likely keep corn prices quite volatile through spring.

Corn must buy more acres

Further increases in corn cash and futures prices appear likely at times this fall, winter and early next spring as the market tries to encourage farmers to plant at least 9% to 11% more corn acres than in 2006. Uneasiness about U.S. and foreign weather prospects will keep markets on edge.

Farmers with available on-farm storage should watch price action carefully in the next three months and look for opportunities to forward contract corn into next spring and summer, advises Wisner. Cash-flow needs for the next few months also should be included in storage and marketing decisions. While soybean prices have also moved higher, he says prospects for tight corn supplies by summer and the rapidly expanding use of corn for ethanol suggest higher on-farm storage priority probably should be given to corn.

The United States has a record 3.2-billion bushel soybean harvest this year. Bean prices are expected to also move higher in winter and spring. A sharp increase in corn plantings next spring is likely to reduce bean acres and that may set the stage for reduced soybean carryover stocks in 2006-2007.

Stronger soybean prices ahead? These factors and the uncertainty about South American crop prospects this winter and next spring will likely strengthen bean prices in the months ahead. "The large soybean stocks will probably temper the price strength some, but bean prices will still have potential to respond strongly to any serious crop concerns in Brazil or Argentina," says Wisner.

Another factor driving the corn market is worldwide concern about wheat. Tightening world supplies of wheat help boost U.S. corn exports. Some countries feed wheat to livestock. Normally, about 4 to 4.5 billion bushels (corn-equivalent) of wheat are fed annually in global markets. Since you can feed wheat, strong corn prices will limit wheat price weakness even if wheat production rebounds.

Farmers are generally holding onto grain this fall, but there has been some recent selling. "Some farmers have to store grain in commercial storage," says Matt Essick, Harves' son-in-law who is from Ayershire. "They are more likely to sell corn at strong prices this fall than pay storage at the elevator."

Price is right to sell some corn

Until the last few weeks, market analysts have been saying "store the corn crop." Now as prices in the Midwest near $3 a bushel some producers—especially those who don't have sufficient on-farm storage—are pricing some of the crop out of the field.

ISU economist Bob Wisner advises farmers not to abandon storing corn altogether. Prices could climb even higher as more corn is turned into ethanol. He urges you to carefully watch market activity in coming months and begin forming a marketing strategy for next year.

"We have some of the very best forward pricing opportunities we've seen in years," he notes. A general recommendation is to not be too aggressive at forward pricing, particularly for corn for 2007 crop. That's largely based on the tremendous growth in ethanol demand. "Also, if we should have any weather difficulties in the 2007 marketing year, both corn and beans would likely move substantially higher," says Wisner.