September 5, 2002

Market Advisor: Corn and Soybean Storage May Not Be Best Strategy

By George Flaskerud, Crops Economist
NDSU Extension Service

To sell or store corn and soybeans is the decision at hand as harvest approaches. Storing corn has been profitable during the past several years. The market has not offered an incentive to store soybeans during that time, largely because of large soybean crops in South America.

For 2002 crops, basis contracts or futures contracts appear to be less expensive than storage for both of the crops. Minimum price contracts or options are alternatives with less risk. Also, consider preharvest sales using these tools. Consider scaling-up sales if prices move toward the highs that occurred on Aug. 14, which were $2.88 in December corn futures and $5.79 in November soybean futures.

Futures prices for both crops have improved considerably in the last two months. The December corn contract has increased about 60 cents and the November soybean contract has gone up about $1. These nearby futures prices have improved more than the deferred contracts, especially for corn, to the point where the deferred contract prices are almost the same as the nearby price, especially for soybeans. This price structure makes it difficult to achieve a profit on storage hedges unless basis improves considerably.

Bases for corn and soybeans in east central North Dakota appear to be approximately following the 10-year olympic average (highs and lows excluded from the average). If that average continues to be followed, then the bases for both would be expected to improve into the winter and spring. Unfortunately the improvement would not offset storage costs.

Gains in corn futures prices beyond recent highs would have to come from the unexpected. December futures around $2.80 would be expected for the fundamentals outlined in USDA’s August Supply and Demand Report. Key numbers include an 8.89 billion bushel crop, 7.77 billion bushels of domestic use and 2 billion bushels of exports. Corn futures are near the 10-year highs, excluding 1995-96.

For soybeans, the outlook is less clear. Stocks as tight as what USDA projected in August would have resulted in at least $6.00 futures in the past. But that was before South America became such a major force in the market. Soybean futures prices are at about the 10-year mid-range.

The use of marketing tools that could take advantage of unexpectedly higher prices may be more important for soybeans than for corn. Soybean prices will likely be as sensitive to South American growing conditions as they have been to ours.

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Source: George Flaskerud, (701) 231-7377, gflasker@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu