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Corn sales window could be closing

Are you disappointed with new-crop corn futures still under $3.50?

Are you disappointed with new-crop corn futures still under $3.50?

Steve Johnson has an answer: Sell more bushels soon, at least enough to meet cash flow needs this fall and avoid the higher costs of commercial drying, shrink and storage.

Johnson, an Iowa State University farm management specialist, argues that higher yields this year could still net a positive return even at today’s cash price bids.

“I can bushel my way out of this,” Johnson said in his “Crop Marketing Strategies” webinar Tuesday evening. A webinar replay can be found at https://www.calt.iastate.edu/article/crop-marketing-strategies-webinar-replay

Johnson thinks most farmers can make money at today’s prices, especially with cash prices offered at most processors for harvest delivery.

Cash offers are not great but could be much lower by harvest. The USDA’s June 11 WASDE (World Agricultural Supply and Demand Estimates) report puts the average cash price for new-crop corn at $3.20 per bushel for the 2020-21 marketing year.

In Iowa, using a trendline yield of 198 bushels an acre for corn, average production costs of $420 an acre, and $222 an acre average cash rent, the typical farm is likely to net $86.60 an acre this year. That’s because that farm will get about $95 an acre in government payments. Even with federal help, the breakeven price is $3.24 per bushel — just barely above USDA’s projected $3.20 price.

Johnson believes that many farmers in Iowa and nearby states will have better-than-average yields in 2020. That pushes the cost per bushel down and improves the likelihood of getting a positive return even at cash price bids for this fall.

He showed a slide to illustrate that effect. Holding everything else constant — government payments, production costs, and rent, even a slight boost in yield to 213 bushels an acre lowers the breakeven price to $3.01 per bushel. With that yield, the net return to the farmer is $134.60 an acre.

With a high yield of 228 bushels per acre, the effect is even more dramatic — a breakeven price of $2.81 and a net return of $182.60 per acre.

“Iowa has the best-looking corn crop as of mid-June that I’ve ever seen,” Johnson said. “Minnesota is the same way.”

Johnson said he’s not a marketing adviser and he doesn’t know the future. The U.S. Drought Monitor already puts parts of Kansas, North Dakota, and northern Minnesota in dry to moderate drought. Johnson said a “flash drought” is possible in parts of the Great Plains.

But Iowa, Minnesota, Nebraska, and most of the eastern Corn Belt aren’t short on moisture. More rain is headed their way later this week.

By the third week of June it’s not unusual to see a futures price trend change for corn, either up or down, Johnson says.

“I think there is both futures and basis risk in corn but not as much for soybeans,” Johnson said.

That’s due to the large projected ending stocks of 3.3 billion bushels of corn, a record for free stocks not under government loan. Other bearish factors include the likelihood that the still depressed economy will lower ethanol and feed use more than USDA’s current projections.

Soybeans aren’t facing rising ending stocks and the stocks-to-use ratio for beans is trending down in 2020.

“If we don’t get hot, dry weather in Iowa, Illinois, and Nebraska in the next three weeks, I think the party is over,” Johnson said. With a large corn crop, “I’m real concerned about storage and drying capacity and basis in October.”

By harvest, the corn basis bids at many elevators could widen to 60¢ to 65¢ under December futures, Johnson said, with cash prices averaging perhaps $2.50 to $2.70 per bushel.

Johnson said his advice is a departure from 15 years of encouraging farmers to set a target price and sell into it. Many advisers are doing that this year, with a goal of $3.50 to $3.60 per bushel December futures.

“What if we don’t get there?” Johnson asked.

If prices fall, farms with corn base acres signed up for the Price Loss Coverage (PLC) program will likely get even larger payments, Johnson said, (although they won’t be paid until October of 2021). Remember, ARC/PLC payments are decoupled from actual planted acres. Also, new PLC yields can be updated until September 30 at your local FSA office.

“What if the national cash price falls to $3.20 per bushel? I get about a $65-per-acre PLC payment, so you’ve got some protection against lower cash prices,” he said.

The COVID-19 pandemic that is putting pressure on corn prices has also lowered fuel, propane, and fertilizer costs. Johnson encouraged farmers to lock-in on these lower input prices this summer.

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