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SC Iowa | Couple of big drivers in corn basis this year...
First has been the lack of farmer selling into the summer months which kept the end user lightly covered unless willing to pay the piper and get the commercials to short their price later deck of corn....
Second has been the "fight the last war" syndrome at work.....having seen basis scream higher in late August, September, and most of October '09, the end user was anxious to cover biz in those slots if/when available.......with the June 1 corn stox smaller than anticipated, the worry turned to quality and size of remaining farmer deck of corn....plus the last 15 days of June, the board was going lower and the market anticipated lower $3 cash corn prices---certainly not the way to get cheap basis values.....
What is going on right now reminds of 2-3 years in late 90's and early 2000's when we had those large stocks of loan bushels and sub-loan rate cash prices.....and it became more of game to maximize the spread between MLP and cash rather than an absolute fixation to any level of cash price.....selling volumes were large and basis crashed to -40u to -50u which equated to -54 to -64Z at the time......the game was all about getting enough space available on farm to store the next harvest, which meant we were seeing harvest basis lows much earlier in the marketing cycle....by the time we actually got to October the basis vs. the Z had recovered into the -30's as the excess had been moved early and farmer had space he could fill until he saw the actual size of the crop......
So, we've had this 60+ cent corn rally off the bottom and now cash all of a sudden is flying.....if I counted the number of guys..good guys who normally get well priced summer positions in place that have told me "I sure messed up my corn marketing this year", well the list would be big....
now, combine the volume of corn these guys have left to move and the fact harvest will be normal to early, and these guys, even with #1 quality corn, are telling me they will keep hauling corn now even though we are paying 15 cents to wait until August 18.....
and of course, my bosses are wondering why I purchased too much of the "high priced variety" instead of being able to see through the fog so we would have more buying capacity at the cheaper numbers.......
If it makes you feel any better.....nobody is real happy right now!!
Ray J
PS---- some of these dry mill ethanol plants that have added quite a bit of storage past years now find they are sitting on 15-25 days of corn in house, have huge decks of contract corn coming at them, and now wondering how they will get space emptied by harvest....when they pull out of the market (like several are doing now), that just pushed corn down to the next guy, and his basis tumbles in a domino effect until you find someone willing to fill outside space with corn at some pretty cheap basis levels----which would be an easy decision if not for the quality concerns....always something....
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Corn basis...what's going on...
