Row crops in the black — for now04/19/2018 | Soybean Exports, Soybean News, Economics, Weather
By Matthew Wilde, ISA senior writer
Iowa row-crop farmers have an opportunity to lock in profits for 2018 with average yields or better.
Estimated production costs this year for soybeans and corn fell by $10 and $5 per acre, respectively, according to Iowa State University (ISU) Extension and Outreach research. Coupled with new-crop futures prices and expected basis levels at some Iowa grain processors, experts say there’s money to be made — at least in the near-term — on commodities yet to go in the ground.
Steve Johnson, an ISU Extension farm management specialist, said many farmers already cashed in on pre-harvest sales. For those who haven’t, he recommends selling enough soon based on annual production history to at least cover fall cash flow needs.
Johnson expects soybean futures prices to drop and basis (difference between local cash and futures prices) to widen 10-20 cents at processors just before and during harvest. Basis at most elevators are expected to be excessively wide when combines roll, he added.
“We had a nice spring rally,” Johnson said. “I hope most farmers at least grabbed the futures price and are managing basis levels on bushels they intend to deliver.
“There’s a lot of unpriced corn and soybeans still in bins that will need to find a home come fall,” he continued. “Futures prices and basis levels are attractive now, but my concern is they won’t be at these levels come harvest.”
Add in trade uncertainty with China, and Johnson said farmers can’t go wrong capturing profits and avoiding the risk of long-term commercial storage costs.
ISU Extension projects the cost to raise herbicide-tolerant soybeans following corn is $9.39 per bushel, with an expected yield of 55 bushels per acre. The statewide average last year was 56.5 bushels per acre, according to the U.S. Department of Agriculture (USDA).
Soybean cost of production figures include land at $256 per acre. With an average yield of 60 or 65 bushels per acre — which isn’t uncommon in many parts of the state — soybean break-even costs dip to $8.60 and $7.95 per acre, respectively.
Soybean prices Wednesday:
- January soybeans on the Chicago Board of Trade closed at nearly $10.50, up nearly 50 cents since early February.
- Cargill Cedar Rapids, $10.08 per bushel for January delivery, a 42-cent basis.
- East Central Iowa Cooperative in La Porte City, $9.70 per bushel for January delivery, an 80-cent basis.
- AGP Eagle Grove, $9.70 for January delivery, an 80-cent basis.
Soybean profits ranging from 30 cents to more than $2 per bushel, depending on yields and final cash price received, are possible.
Johnson said these profitable returns are possible statewide, despite basis challenges. For most soybean growers, he said production costs — if farmers are paying for high-quality land — typically range from $9.20 to $9.80 per bushel.
“I know farmers who are done pre-marketing their 2018 soybeans and others who feel really good about what they’ve priced so far,” Johnson said. “Those are the farmers who typically know their cost of production, leverage revenue protection crop insurance and practice discipline in implementing their crop marketing plan.”
ISU Extension estimates the break-even price for corn following soybeans, averaging 200 bushels per acre, at $3.47 per bushel. The 2017 statewide average corn yield was 202 bushels per acre, according to USDA data. Land costs of $256 per acre and other related expenses were used in determining cost projections. A 220- and 250-bushel-yield drops breakeven prices to $3.16 and $2.78 per bushel, respectively.
Corn prices Wednesday:
- December corn on the Chicago Board of Trade closed at $4.08, up nearly 20 cents since early February.
- ADM Cedar Rapids, $3.91 per bushel for December delivery, a 17-cent basis.
- East Central Iowa Cooperative in La Porte City, $3.58 per bushel for December delivery, a 50-cent basis.
- Flint Hills Resources ethanol plant in Shell Rock, $3.70 per bushel for December delivery, a 38-cent basis.
Corn profits from 11 cents to more than a $1 per bushel are possible depending on yields and final cash price received.
Brian Knudtson, an Iowa Soybean Association member, is afraid farmers may be missing out on opportunities to boost incomes since they’re so focused on planting or the lack thereof. He may know better than most as a farmer and vice president of Manufacturers Bank and Trust in Lake Mills, specializing in ag lending.
“A lot of farmers have tunnel vision right now, me included, because they want to get in the field,” Knudtson said. “They need to stay on top of things and take advantage of pricing opportunities when they can.”
Profit potential is pretty good right now, he said. ISU’s cost-of-production estimates are pretty accurate, Knudtson said, based on calculations for his farm and bank clients.
After several years of declining farm revenues, low commodity prices and thin-to-nonexistent margins, Knudtson said profit taking is good. It’s all about risk management these days, he added.
“I think people need to consider making sales at his level,” Knudtson said. “They can buy call options for upside protection and puts to establish a floor.”
Contact Matthew Wilde at email@example.com.
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