U.S. farmgate prices for corn and soybeans will come under pressure this fall as farmers produce likely record crops, but rain delays to the harvest and strong demand should keep cash markets from collapsing.
“The harvest weather overall as we move through October does not look to be that good,” said Mike Palmerino, an agricultural meteorologist with DTN Meteorlogix.
“A pattern of cool, wet conditions has been with us since the spring, and I think we’ve fallen right back into it.”
The Midwest harvest is still in the early stages but combines were rolling, especially west of the Mississippi River, until rains halted progress last week. Most farmers focused on soybeans as they waited for corn to fully mature.
In Iowa, grain dealers said soybeans poured in from the countryside, replenishing processing facilities that have struggled to keep operating as supplies from last year’s harvest dwindled.
Cash basis bids crumbled recently, falling 45 to 50 cents a bushel in crushing centres like Des Moines, Iowa, and Lincoln, Nebraska, and backing down from historically high levels.
Soy and corn bids will face continued pressure this fall as the U.S. grain-handling system digests what are likely to be historically large crops of more than three billion bushels of soybeans and about 13 billion bushels of corn.
Yet the wetter weather pattern shaping up for October raises the risk of harvest delays that will slow grain movement into a market clamouring for fresh supplies. As a result, the cash basis – the differential between the local cash price and the futures market – should find some underlying support.
“Slowing the harvest down will actually mean the basis may hold stronger than it normally would, given a crop of this size,” said Chad Hart, agricultural economist at Iowa State University.
“For soybeans here in Iowa, we’ve seen basis slide already, but when we compare it to the five-year average, the basis is still relatively strong,” he said.
The market is highly sensitive to supply disruptions this fall because supplies are tight, especially for soybeans, and the USDA has issued strong usage forecasts for 2009-10.
USDA’s quarterly grain stocks report showed U.S. Sept. 1 soybean stocks at 138 million bushels, up slightly from earlier projections but still at bare-minimum levels following a year of strong export demand from China.
Furthermore, wet conditions have increased crop diseases that could reduce final yields in the corn belt.
“It’s like a big Petri dish sitting out there,” said Terry Francl, senior economist with the American Farm Bureau Federation. “All this stuff (disease) is growing with all this moisture and cool weather that we’re experiencing.”
Francl said high rates of diseases including Diplodia ear rot in corn and white mould in soybeans could trim overall yields, reducing the average U. S. corn yield by one or two bushels per acre and soybean yield by one-half bushel per acre.
A slower pace of harvest will also help prevent grain from overwhelming storage and transportation networks, averting bottlenecks that depress local cash prices.