NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
October 7, 1999
George Flaskerud, Extension Crops Economist
NDSU Extension Service
Feed grain prices are likely to be near their summer lows again during corn harvest, and if the harvest meets expectations, the post-harvest price recovery will likely be modest. Livestock producers should consider buying feed grains at harvest and storing for their total needs while crop producers should consider alternatives to harvest sales.
Corn producers should consider taking the loan deficiency payment (LDP) at harvest. On price rallies of 10 to 15 cents, most likely after harvest, they should consider selling the corn using a hedge-to-arrive (HTA) elevator contract or futures hedge, targeting the July futures contract. Fixing the futures price in the July contract is preferred to a cash sale because of a weak basis and because the distant futures contract offers a better pricing opportunity. Delivery should be planned for early June. This method of selling is called a storage hedge.
As of Oct. 1, a storage hedge in the July contract could give a 29-cent better return, compared to cash sales off the combine. For this analysis, an LDP of 28 cents was taken, an in-and-out-of-the-bin cost of 10 cents a bushel was charged, and monthly storage costs of 1.2 to 1.7 cents per bushel were assessed. In addition, a repeat of last year's basis at Hunter was assumed in which the monthly average improved by 27 cents between October and June.
The latest fundamentals for corn have reduced price prospects. According to USDA's stocks report on Sept. 30, feed use of corn was about 100 million bushels overestimated in the September Supply and Demand Report. The stocks-to-use ratio for 1999-2000 will likely exceed .21 unless demand improves significantly. USDA will refine its production estimate of corn as well as soybeans on Oct. 8.
A stocks-to-use ratio of .21 for corn correlates well with a December futures average price of $2.10 to $2.20 during October. A year ago, when the October estimate was .18, December futures averaged $2.18 during October. Last year's low in December futures was about $1.96 in early September. The low this year in December futures was $1.94 on July 12. The next lowest price was $2.06 on July 29, which is where the market traded on Oct. 1. Since 1990 on average, the December futures contract has bottomed in late October, with early October recording nearly as low a price.
A feed price of $1.40 and malting price of $2.60 at Minot may be about the best barley prices the market can generate in the next couple of months. As of Sept. 29, prices were $1.35 for feed and $2.55 for malting. Last year at Minot, barley prices averaged $1.25 for feed and $1.85 for malting during November and $1.30 and $1.90 during January. Historical seasonal price patterns favor November for sales.
Favorable contracts for later delivery of barley, as in corn, are not known to me. Perhaps they are available or can be arranged directly with a livestock operation. Take the LDP on barley in October if not already taken, although large changes are not expected. The LDP for barley was fairly steady during this past year. See your local Farm Service Agency for rates and regulations.
Recent USDA reports will have a minimum impact on barley prices. In a small grains production report released on Sept. 30, barley production is expected to be down 19 percent from a year ago, but more importantly, production was increased 1 percent from the last forecast. Barley stocks on Sept. 1 were down 9 percent from last year.
Oats prices may get some benefit from the USDA reports supporting the traditional fall strength for oats prices. Oats production is expected to be down 11 percent from a year ago, and down 9 percent from the last forecast. The shortfall, however, can be made up by imports, which account for nearly a third of the U.S. total oats supply. With plentiful stocks, Canada is a major source of oats, providing 62 percent of U.S. imports during 1998-99. Other major sources of imports were Sweden at 24 percent and Finland at 12 percent.
Sprouted grain is a problem for many this fall, and feeding it may be the best marketing alternative. Information on the feeding value of sprouted grain including spring wheat and durum is available in the publication titled "Feeding Value of Sprouted Grains" (AS-647) by Greg Lardy, North Dakota State University beef cattle specialist. This publication is available from county extension offices or the NDSU Agriculture Communication distribution center by calling (701) 231-7882 and via the Internet ( http://www.ext.nodak.edu/extpubs/ansci/livestoc/as647w.htm ).
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Source: George Flaskerud (701) 231-7377
Editor: Dean Hulse (701) 231-6136