Selling Grain: A Challenging 2023
Just a few months ago, selling grain was a breeze. Grain prices soared well above our cost of production, and the 2023 crop was planted by most producers in just a matter of weeks. During that period, our corn and soybeans were in high demand, with merchandisers and end-users eagerly accepting truckloads of grain, maintaining strong local basis levels. It seemed like selling grain couldn’t be easier.
However, as we’ve all noticed, the fall of 2023 brought a dramatic shift. Typically, our summers are spent monitoring the weather in the corn belt, assessing our own crops and keeping a close ear on USDA and private analysts for crop condition updates and yield estimates. This year, though, uncertainty loomed larger than it has since 2019 or even since the nationwide drought of 2012. So, why have crop prices and basis levels weakened since the Fourth of July?
Understanding the reasons behind the slump in futures and basis levels might provide insights into when and how to sell grain profitably once more.
Let’s look at exports. The USDA has lowered its estimates for U.S. export volumes in its latest reports. Traders are concerned that these estimates may still be too high, as buyers increasingly look to source soybeans and corn from South America, where new crop production is rebounding after last year’s La Nina-induced shortage. Moreover, the strengthening U.S. dollar has created additional headwinds for our exports. Low water levels for shipping grain downriver in the U.S. and soaring Panama Canal rates, due to drought in the region, have significantly raised shipping costs. Exports account for approximately 14% of U.S. corn usage and a substantial 40% or more of the U.S. soybean crop. As the uncertainty around our exports becomes clearer and is factored into pricing models, we may be able to move past the price depression. Understanding these dynamics can help you gauge whether more challenges lie ahead or if higher prices might emerge sooner rather than later.
Geo-political factors could also influence prices. At the start of 2023, uncertainty surrounded the extension of the Black Sea grain agreement and the supply of much-needed fertilizer from the same region. Experts agree that these issues are far from resolved, so while they might not be the primary cause of the price decline, developments in that region should still be on your radar.
Other uses for corn and soybeans also play a significant role in determining prices. Ethanol and biodiesel have traditionally been strong drivers of U.S. grain demand. However, projecting substantial increases in traditional biofuel usage is becoming increasingly challenging. Some experts believe that gasoline consumption in the U.S. may have peaked in 2018, making it harder to realize growth in ethanol and biodiesel usage. Sustainable aviation fuel and renewable diesel are becoming more critical to offset our productivity gains in growing corn and soybeans. Keep a close watch on corn and soybean usage across all sectors to analyze the long-term price outlook.
For producers with affordable storage options, there’s still time to develop a sound strategy to navigate the current period of lower prices. Please note that I do not offer specific grain marketing advice to individuals, and producers should always consult with their advisors or trusted grain marketing resources for strategies tailored to their own farms and consider associated risks. So, what are some ideas to re-enter the selling game? These could include extending December grain contracts and hedges by several months to capture a market carry premium and potentially a stronger basis. For grain that must be sold near harvest or cannot be stored at a reasonable cost, consider a call replacement strategy to facilitate the release of physical grain. Additionally, create a basic marketing plan that sets target prices with specific dates to trigger sales for the 2023 crop. This allows you to incorporate your own price expectations while maintaining discipline in sales timing, reducing risk if your price assessment proves inaccurate.
Re-entering the selling mindset might be challenging in the current situation, but timely information and well-informed decisions will be the keys to moving forward.