Dry conditions raise corn prices
FARGO, N.D. -- Rallying farm commodity marketing prices, in the wake of new realizations about hot, dry conditions during a critical period in the central Corn Belt, are causing a stir in the expanding corn planting areas of the Northern Plains, where crops still look promising.
Mike Clemens, Wimbledon, N.D., farmer and board member of the North Dakota Corn Growers Association, says each farmer will respond differently to volatile markets. Prices softened through the winter and spring, up until the past couple of weeks.
"Everybody probably has some of (the 2012 crop) sold. Some probably had wished they'd sold more," Clemens says, adding that the recent rallies are changing minds. Clemens recently bought back some of the corn hedges he'd made on the Chicago Board of Trade.
"I'd taken a trip to Kansas City (Mo.) and saw the way some of the corn was rolling up, so we decided to lighten our positions," he says. "We had positions sold and we bought them back. We think there's an opportunity to resell at a higher level. It takes a major (market price) move to do something like that.
"You think you're going to have a good crop, but you have to wonder if the high pressure and heat dome will spread north," Clemens adds. "We've been on the fortunate side of the jet streams. We've got to be meteorologists as farmers, you know."
Will selling slow?
Carrol Duerr, manager of the Colfax (N.D.) Farmers Elevator in northern Richland County, says the prices are higher today than they were in mid-June. "Ten days ago, if I could have been bidding what I am today, people would have been selling more bushels than they are today, because of the chance of what they think could happen in the future," Duerr says. "The Corn Belt report looks tough. The weather maps say it's supposed to be hot and dry."
Duerr will be looking at a June 29 crop planting and stocks report, out at 7:30 a.m., which will provide the U.S. Department of Agriculture's estimate of major crop acreage, including corn and soybeans. The ending stocks estimate in the report is figured on the bushels-per-acre yield projection, so the trade will be able to see if the government predicts a downward drift in yield potential.
"We'll trade that for a short-time (June 29), and then it'll be 'What's the weather forecast?'" Duerr predicts.
And there's a wild card. The markets went to 21-hour-per-day trading (5 p.m. to 2 p.m. the next day) so international investors can trade during their daylight hours. Markets used to go from 9:30 a.m. to 1:15 p.m., and then 6 p.m. to 7:15 a.m. "Now, for the first time, when that report comes out at 7:30 a.m., the market is already trading, so you have to look at that report and assess as quickly as the next guy (who is) buying and selling, and be one step ahead of everybody else," Duerr says.
Clemens thinks the Friday report will be dwarfed by the weather reports. "The report is ancient history," Clemens says, because the crop was largely planted by May 1. "I think the crop conditions are more important right now than the number of acres they've got planted. The future of the weather patterns are for more hot and dry. I expect more (price) rallies."
Frayne Olson, an NDSU Extension Service crops economist/marketing specialist, says the reason for a rally is "never as simple as just one thing."
Never just one thing
"Until recently there's been an expectation built into the markets that we're going to have this monster corn crop," Olson says. "We had the early planting season in major growing regions in the U.S. and very favorable weather." The attention in the markets had diverted to the macroeconic issues, such as the U.S. and European economies.
Meanwhile, the U.S. growing season seemed to be pedaling along, with showers in major corn-growing areas. "But the growing season has now caught up with us," he says. "We're getting rains, but the crop is using up moisture faster than it's being replenished. Weather forecasting models all suddenly said the same thing -- a hot, dry spell was coming at critical (reproductive) stages."
As the price rallies have come from the market fundamentals, the investment community has gotten involved. "They started jumping on the bandwagon as well," Olson says. "The financial community comes in and out of the market very quickly. Huge pools of money shift around quickly."
Olson says if prices remain relatively high, there will be some rationing of demand. He pointed to announcements on June 28 that the second significant ethanol plant in the Midwest would shut down temporarily for economic reasons. It isn't always clear whether the shut-downs are partly a result of corn prices and partly an opportunity to do maintenance.
Olson says it is impossible to know how much of the crop is already marketed -- 25, 50 percent or more. Some of the region's farmers marketed overly-aggressively or early in 2011 and, with wet conditions, found themselves short on the grain they'd priced. It isn't clear whether that changed their pattern in 2012.
Still, there's risk
Dwight Aakre, NDSU Extension Service farm management service, says both the corn and soybeans look good in the region right now. "The big factor is what yield we're going to have," he says of whether farmers can capitalize on the rallies.
Aakre says a lot risk remains, but so does potential for positive bottom line returns on corn and soybeans. Farmers can lock in cash contracts in eastern North Dakota and western Minnesota in the $5.60- to $5.70-per-bushel range for corn, with harvest delivery. They can lock in soybeans at $13 to $13.25 per bushel, he says. Break-even for most producers is going to be $4 per bushel, or slightly higher, with soybeans break-even at about $8 per bushel, Aakre says. "That's impacted tremendously on the yield you're going to get."
Of course, farmers have little leeway at this point to add inputs to growing crops, improving yields and capitalizing on higher prices. Corn is mostly too late for side-dressing nitrogen. Most of it has insect protection built into the genetics. Disease problems rarely get to the point of warranting fungicides in this region.
Soybeans bear watching, especially for aphids and other problems that can rob yields.
Fertilizer prices were higher this past spring, but there was enough profit potential at the time, so most farmers didn't hold back. "I didn't hear any anecdotal evidence of people cutting back on inputs because of the price of fertilizer," Aakre says.
Since then, much of North Dakota has received timely rains. "Some areas would probably like more rain, as long as it comes at a reasonable amount. There are some wet spots, but not a lot."