DENVER, COLORADO, US — Grain prices continued to surge upward through December changing 2020-21 grain marketing season allowing US grain elevators to profit from strong margins on stored crop, according to a CoBank Knowledge Exchange division report.
Elevator activities over the next three months are expected to be limited until a better understanding of US planting intentions and actual crop production in key international grain growing regions.
“Given the continued inversion in futures prices, we see volatility ahead with limited opportunities for elevators to buy basis cheap and capture carry, at least during the near term,” said Kenneth Scott Zuckerberg, lead grain and farm supply economist at CoBank. “However, grain cooperatives that also have farm supply divisions should benefit from a strong fall application season and what we believe will be an acceleration of farmer prepayments of spring crop inputs prior to yearend.”
The crop year is ending on a higher note for US grain elevators than previously anticipated. Early in the 2020 growing season, expectations for a large crop resulted in low estimates of average farm-gate prices at harvest, specifically $3.20 per bushel for corn and $8.40 per bushel for soybeans, according to the report.
But prices began to rise in the fall closer to $3.75 for corn and $10.25 for soybeans, growers began contracting with elevators to lock in what had previously been unobtainable profits for the 2020-21 crop. Elevators were able to sell stronger basis into a marketplace with robust demand from both local processors and export sales to China.
The report attributes China’s increased US grain demand to need for animal feed, domestic crop shortfalls and weakness of the US dollar compared to the Chinese yuan.
CoBank analysts expect corn and soybean prices to continue to be supported by concerns about the size and quality of the Brazilian and Argentinian crops due to La Niña weather conditions, strong export demand by China, steady domestic feed demand, and increased stability for US ethanol production.
Zuckerberg does see two potential outlooks for US grain elevators over the next six months. The first possibility is that the inversion in commodity future prices reverses, creating opportunities for elevators to buy cheaper basis and capture carry.
“This could occur in the event of a milder La Niña, which would result in larger Latin American crop production, a significant increase in planted US soybean acres and a temporary or more permanent reduction in US grain purchases by China,” Zuckerberg said. “The cumulative impact of those events would exert downward pressure on cash prices.”
The other possibility that Zuckerberg sees is that elevators could be forced to the sidelines amid an uptick in commodity prices and a limited ability to buy basis likely to capture carry.
“This situation would occur with volatile or dry weather and a continuation of robust soybean demand from both China and domestic processors, which would exacerbate already tight supplies,” he said.