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NorthStar News

Corn and Soybean Market Outlook for 2017

By Melanie Lundheim

Throughout the upper Midwest, Great Plains, and Mississippi River Region, the United States (U.S.) experienced ample rain and moderate temperatures in 2016. This led to high annual yield and production for corn and soybeans, according to the Crop Production 2016 Summary by the United States Department of Agriculture’s (USDA) National Agricultural Statistics Service (NASS).

Last year, U.S. corn growers produced 15.1 billion bushels, up 11 percent from 2015. U.S. soybean growers produced 4.31 billion bushels, up 10 percent from 2015. Despite these bumper crops, unfavorable weather in Brazil and Argentina in 2016 decreased global corn and soybean supply.

Weather conditions were hot and dry in Brazil and too wet in Argentina during the regions’ peak corn and soybean growing seasons in 2016. The resulting reduction of corn and soybean supply drove up prices for soybeans from around $9 per bushel on the Chicago market to just over $12 from February to June of 2016. To a lesser extent, decreased supply also drove up prices for corn from around $3.30 per bushel on the Chicago market to just over $4.30 from February to June of 2016.

According to the Grain Stocks report, corn stocks are estimated to be up 10 percent, with 12.4 billion bushels of corn stored in all positions. Soybean stocks are estimated to be up seven percent, with 2.90 billion bushels of soybeans stored in all positions.

In 2017, the U.S. corn outlook is for lower production, reduced feed and residual use, increased corn used to produce ethanol, and smaller stocks due to greater sorghum feeding, according to the January 2017 World Agricultural Supply and Demand Estimates (WASDE) report by the USDA. The projected range for the season-average corn price received by producers is $3.10 to $3.70 per bushel.

The same USDA report forecasts the season-average soybean price received by producers to be $9.00 to $10.00 per bushel. The soybean meal price is projected to be $305 to $345 per short ton and the soybean oil price is forecast at 34 to 37 cents per pound.

Although growers can’t control corn and soybean markets, they can take steps to optimize the prices they receive for their crops, according to Al Kluis, president and CEO of Kluis Commodities.

He recommends growers put together — and execute — a marketing plan. The marketing plan can help growers establish a series of targets to make an incremental 10- or 20-percent increase in corn and soybean sales when prices rally. In the event prices don’t rally, the marketing plan should also include a plan B that involves strategically timing sales of corn and soybeans between the first weeks of April and the last weeks of June.

According to Kluis, the seasonal price pattern for corn and soybeans in 2017 suggests growers should have 40 percent of their 2016 corn sold and 70 percent of their 2016 soybeans sold. “If growers aren’t hitting their current price targets, they should make seasonal cash sales between early April and late June.”

For pre-harvest sales of new 2017 corn and soybean crops, adds Kluis, growers plan to sell 40 to 60 percent of their crops before harvest. “But be cautious,” Kluis warns. “If growers’ marketing plan concepts become well known, they may not work again. Rather, growers should use a combination of making hedges in the futures market and buying puts.”

In 2017, Kluis recommends growers get new crop price protection in place by planning to use more puts and fewer hedges in their market plans.

Even when grain prices are lower, Kluis notes that the most profitable growers keep costs low by optimizing production, reducing equipment cost per acre, and getting their crops in on time. They also consistently get good yields by buying higher-quality seeds — even if they’re not the cheapest seeds — and using fungicides appropriately.

Looking ahead, we’re now experiencing a huge increase in demand for corn and soybeans across the globe, particularly in China, where there’s an increase in demand for protein as its per capita income rises. “It has been tough to make money the last couple of years, but with increased demand, odds are good that prices and profits will improve in 2017,” said Kluis.