Cash-corn lessons from 1995-96
Jun 15, 2012
From The Editor
June 15, 2012
Hello Pro Farmer Members!
It was a tough day for front-month corn futures. Despite the fact old-crop stocks remain exceptionally tight, the old-crop market is acting like it has done its job of making sure there will be plenty of corn left at the end of the current marketing year. And it probably has...
There was talk today that end-users of corn are doing business with each other. Some end-users have reportedly started to move their supply of corn to other end-users. There's only one reason they'd do that. Basis appreciation has to be enough that they can make more money by reselling the corn than they can from processing the corn into whatever it is they're processing.
Something similar happened in the summer of 1996 when the old-crop corn market was trying to find a way to hold onto the final 400 million bu. of supplies from the 1995 corn crop. Corn basis in the southeastern U.S. was screaming hot that year -- it traded as high at $1.85 over July futures and basis was in the range of 75 cents over the board in the Midwest. Then the price advance and basis strength suddenly stopped and prices started to retreat very quickly. It took a while to figure out what had happened, but the combination of price and basis strength meant the market had done its job -- it forced reallocation of existing stocks from one group of end-users to another.
If end-users really are reallocating supplies among themselves, then the market probably has done its job and price strength in the July contract will be difficult to sustain from this point forward. That doesn't mean trade in the old-crop contract would be boring... price volatility would likely remain very high, but the path of least resistance will likely be to the downside.
And it looks like we're going to import some Brazilian corn. There was also talk in the corn market today that feed processors in the Southeast U.S. are importing corn from Brazil. We'll wait for confirmation on that, but importing feed is something Southeast hog and poultry producers have done before. Most common are wheat imports from Europe, but if they can import corn from Brazil cheaper than they can "import" corn from the Midwest, they'll do it.
That's it for now...
Happy Father's Day to my dad, Dave Flory! And to my dad-in-law Terry Schneider -- and happy birthday to Terry, too! I hope all you dads have a great weekend!
... have a great weekend!
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