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SC Iowa | Right now we are in a perfect storm scenario regarding corn basis. With a board that peaked last January, farmers held unpriced inventory into the middle of summer which meant plentiful supplies available late July/Aug/Sept....add in the fact that it's "felt" like there was just more corn around late summer than we expected to see---never knew just how quality issues were going to affect supply, but now seems like non-event although we've rejected record amounts of corn in aug and fh sep for damage/bugs, etc....then throw in the fact harvest is early, moistures are down, and prices are higher--all of these are keeping front end of corn market well supplied and basis under pressure....
But we also need to examine the structure of our US corn industry.......by far the great bulk of our increased usage is coming from ethanol plants with storage capacity limited to a few days of use.......and that means when the front end pipeline gets full across the industry it leads to a basis "dump" which is exactly what happened when all those factors above came into play.....sometimes fear feeds on itself....."if it's bad today, better sell the bid 30-60-90 days out" and then those slots start filling up and it just keeps going south.....
Geography is going to play a big part in how this works itself out post harvest......a very general observation is that basis will snap back hard (get narrower or firm) east of I-35 by about the mid-point of harvest as industry sees there is plenty of space available to store the crop....and the farmer seeing his shorter than expected crop will slow down sales after delivering contract bushels....
A different scenario likely to play out in far west/northwestern half of cornbelt.....yields there will be closer to expectations (big crop staying pretty big), and that is also the area of the US that needs to build more space as we transition away from small grains to corn production which really ramps up storage needs....so I think basis can be pretty slow to recover in this last region as available space will be at a premium......
The industry has a lot of harvesting capacity when corn is well under 20% moisture and that is just going to keep product flowing, even if the calendar says September of first ten days of October.....
Let's revisit basis levels in the areas mentioned above about November 1 and see how it all played out....
PS---- my job is to buy corn at the widest basis level EVERYDAY.....I get a real chuckle out of some of the messages that would imply "we're putting it to 'em right now" vs. something else......trust me, if upper management thinks I'm not getting the job done, they won't be bashful about putting someone else in the captain's chair who can do it better..
Lastly---big moves in corn futures have an effect on the psyche of the seller......back in 2008 when cash corn hit $7 on occasion I can tell you the farmer didn't care whether the basis was -20N or -60N....it was "$7 cash for heaven's sake" and that was a heckuva price...same thing for $13-15 beans......we've had a miniature version of that in past 50 days......prior to July 1 the worry was about selling for $3 on a big crop scenario....then the price started to run higher and ag was a beautiful green island in a sea of global economic worry....sure wouldn't blame anyone for continuning to sell on the way up while worrying when the rest of the world might blow a gasket-----but those, and others, are ALL factors in why we are seeing nearby corn basis where it is right now....
25 cent carry from today's basis to Nov 15 in Eddyville ( -40Z vs. -15Z)
regards,
Ray J
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corn basis....and other stuff
