Its been quite a roller coaster market in grains this year, with leadership shifting from corn to wheat in about April of this year. Wheat is pushing new highs, making history with $8 futures bids this week! Recently, the oilseed markets have also come alive from the realization that South America has to expand acreage significantly to replace lost U.S. acres to corn. South America will start planting soybeans shortly, so markets are spiking some to try and attract acres.
That is also helping the sunflower market along with the sharply higher wheat market. Wheat prices have exceeded their all time highs in the Chicago market, and Kansas City and Minneapolis markets are not far behind. As harvest of corn and soybeans gets underway, it's apparent that the 2007 corn crop will be better than normal (slightly above average). Soybeans might actually exceed 'trend' yields of around 42 bu, as Pro Ag yield models as of the end of August are improving significantly week by week due to recent August rains. It looks like yields will be above average, but of course we won't know that for sure until harvest begins. So far, southern U.S. corn yields have been much better than expected, with some Texas producers harvesting 200 bu+ on dryland acres! These outstanding yields are due to the continuous rains in the Central Plains all summer (remember the harvest delays in winter wheat???).
While soybean futures are tipping near $9 as we approach harvest, basis is absolutely awful across the country, with the North Dakota basis almost $1.50 in most locations - terrible historically. Producers can hardly afford to sell at such terrible basis. Instead, it looks like a year to store soybeans into next year (which will tie up valuable storage space).
Sunflower producers are in a similar funk, as cash prices are about half of bean oil prices (currently trading at $36-$37/cwt). That relationship should be stronger, but then cash prices are not keeping up with futures markets. If a producer needs to sweep out his bins before harvest, now is probably the time to do it as sunflower basis falls as get into harvest.
The big problem for producers now is how much of these high prices should be locked in at this point. It's remarkable that prices are pushing higher this much, but with trouble in the US monetary system (housing sub-par mortgages) the federal government is pumping money into the system faster than a sailor on leave! A huge 0.5% cut in rates along with billions of printed money pumped into circulation is further leading to a slide in the US dollar. Already, the dollar has declined 35% or so the past few years, with many Europeans talking about our 'half price sale' in the U.S. So given the weak dollar, grain markets can continue to go higher than anyone suspected just 12 months ago.
Already we have set a new high in wheat futures while harvesting an above average hard red spring wheat crop. It's been interesting to say the least, with 2007 corn, soybeans, and sunflower yields likely to be above average AND prices at levels we only dreamt about 15 months ago.
Its fun to be involved in agriculture, and even more fun farming, with the prospects for ever higher prices ahead. Surging land values and machinery values are giving farmers a once in a lifetime financial balance sheet boost, and if this continues it won't be long before Ag lenders are falling all over themselves to give farmers more money. Of course, by then it will be the wrong thing to take bankers up on their offer, but some farmers (and bankers) will be caught in the same trap that snared so many in the 1980's farm crises.
For now, its fun to just enjoy the ride, make good investments, and keep pumping out good US crops. Make some sales, and keep hoping for higher prices to sell an additional portion of the crop. Moderation is in order, but don't forget to at least get some pricing done. Now given the poor basis in most crops, it might mean locking in futures at harvest and waiting for better basis before pricing cash grains. The rewards of being patient with 'basis' might pay off handsomely (even though cash prices look attractive today on almost everything).
Yes, the markets have been a roller coaster ride this year, and finally, with this kind of entertainment, its fun to grain farm again!
- Ray Grabanski is president of Progressive Ag, Fargo, N.D., a risk management company. Contact Progressive Ag at 800-450-1404 or see the Web site: www.progressiveag.com.