Store some of 2012 harvest to take advantage of spring rally
Corn is in such short supply that old crop prices are likely to remain strong for months to come. As a result, from now through spring and maybe summer, basis is likely to tighten, according to Ed Usset, University of Minnesota ag economist. "I think that basis 30¢ over futures next year is possible [in Minnesota]," he said at the Minnesota Crop Insurance Confer-ence in September. "I think basis will scream higher next spring."
Looking at the 1995 crop—which has a lot in common with the present year because carryover then, too, was low—basis reached $1 per bushel more than futures. With that in mind, Usset suggests producers consider selling two-thirds of the crop at harvest, but hold the rest.
Assuming more normal growing conditions next spring, Usset predicts that the spread between old crop (2012) and new crop (2013) could widen. "I bet that by next October, prices are lower than $6.50," he says.
One reason Usset believes 1995 is similar to this year is that it had the tightest carryover in 40 years. The second tightest year was 2012, and both years had less than five weeks of usage. If you look at 1996, you’ll see that December futures contracts did an about-face after
the July peak.
However, things are different now than in past years, Usset notes. In the past, demand was cut and could not be quickly rebuilt. "Ethanol is changing that," he says.
- October 2012