Record Prices Cause Buyers to Back Off

With key markets setting new records farmers may find fewer takers for forward contracts.

Published on: Jun 16, 2008

Images of flooded fields hitting the television airwaves, and reports of as much as 20% of Iowa cropland lost this spring are piling on in the grain markets. The results are record prices that farmers will want to try to lock in this season. And they may find fewer takers.

Grain buyers are getting more strapped for cash as they work to cover margin calls in a rising grain market. Dow Jones reported last week that a spot check of major interior termionals showed that new-crop corn and soybean basis fell about 4 cents a bushel across the U.S. as futures rose to new levels. In addition, several terminals offering traditional forward contracts or popular hedge-to-arrive contracts has declined.

Farmers may find fewer contract options as elevators struggle to stay solvent as their current pricing positions erode with record trade.

This drop in forward contracting occurred four months ago when a similar grain price spike in the wheat market caused trouble for short-hedged grain, which is creating a liquidity crisis for some buyers.

In overnight trade leading to Monday's open, December corn has topped $7.80 while new-crop soybeans are over $15.53.