January 10, 2000
CORN AND SOYBEAN PRICES SHOWING SOME LIFE
March 2000 corn futures traded to about $1.95 in mid-December,
but rebounded to $2.07 by the close on January 7. The average
cash price in central Illinois increased from $1.79 to $1.90 during
the same period, as the basis remained about steady. December
2000 corn futures traded to a low of $2.26 in mid-December 1999
and closed at $2.3675 on January 7. For soybeans, January 2000
futures traded to about $4.46 in mid-December, but settled at
$4.715 on January 7. During the same time, the average cash price
of soybeans in central Illinois moved from about $4.35 to $4.59.
November 2000 futures advanced from a low of $4.72 on December
13 to a settle of $5.02 on January 7.
A number of factors contributed to the recent mini-rally in corn
and soybean prices. USDA reports showing larger than expected
numbers of cattle on feed and a larger than expected December
1 inventory of hogs, along with a recovery in livestock prices,
suggest a strong domestic feed demand for corn and soybean meal.
The USDAís December 1 Grain Stocks report, to be released
on January 12, will reveal if the expectation is justified for
corn. Decent levels of export sales, particularly for corn, raised
hopes that the USDAís export projection figures for the current
marketing year were too low. A lack of aggressive corn export
sales by China and indications that the Argentine corn crop might
be a little smaller than the December estimate were also friendly
developments. A continuation of large areas of below-normal precipitation
in the U.S. also played a supporting role. For soybeans, however,
the major factor was the less than ideal start to the growing
season in some parts of South America. A smaller crop there would
support U.S. exports of soybeans and soybean meal.
It is difficult to judge how far the current "rally"
will carry corn and soybean prices. Estimates and projections
in the USDAís January 12 reports will provide further fundamental
information about supply and demand prospects. The development
of the South American corn and soybean crops will be very important
over the next 3 months. Ultimately, production prospects in the
U.S. will determine where prices end up. Currently, many analysts
expect to see at least a marginal decline in corn acreage and
a marginal increase in soybean acreage unless price ratios or
loan rates change significantly. As always, the most important
factor will be growing season weather and average yields for the
Within this context of price uncertainty, producers must decide
how to market the remainder of the 1999 crops and perhaps some
portion of the 2000 crops. For old crop soybeans, the spot cash
price is still well under the loan rate in most areas. Without
a weather event, prices will have difficulty moving above the
loan level. Producers who have already taken the loan deficiency
payment on some portion of the soybean crop might want to take
advantage of a continued South American weather rally to price
some of that crop.
For soybean producers who are considering carrying "unprotected"
crops into the U.S. weather market, some sort of downside price
protection might be considered. For farm stored soybeans, buying
put options might be considered. July $4.75 put options had a
premium value of $.25 on January 7. For commercially stored crops,
selling the soybeans now and buying deferred call options might
be considered. July $5.25 call options had a premium of $.24 on
For soybeans still protected by the marketing loan program, some
consideration might be given to putting the crop under loan, if
not done already, and using the 60 day lock in on the repayment
rate. This strategy will allow producers to benefit from a price
rally even if the rally does not go above the loan rate. The strategy
of holding soybeans unpriced, under the loan program, and without
the repayment rate locked in holds the potential of just trading
dollars ñ higher price and lower LDP as prices increase and vice
For old crop corn, spot cash prices are nearing the loan level
in many areas. Continuing to hold the crop unpriced under the
protection of the loan program is probably the most prudent strategy.
If the posted county price is below the loan rate, locking in
the repayment rate for 60 days might be considered. For both corn
and soybeans, use of the 60 day lock in might be spread over a
period of time rather than putting all eligible crop in that program
at once. For producers who have already taken the LDP on a portion
of the crop, using current price strength to price some of that
crop should be considered. For producers waiting for spring/summer
weather rallies, some downside price protection might be considered.
On January 7, at-the-money July 2000 options cost about 15 cents.
For new crop corn and soybeans, pricing below the loan rate does
not appear warranted at this time. Current corn prices are above
the loan rate, but not by enough to warrant large sales. The purchase
of new crop corn put options at current prices is NOT an attractive
alternative since the option premium reduces the minimum price
protection back to only the loan rate.
University of Illinois