Reallocation of old-crop corn supplies
Jun 15, 2012
Pro Farmer Extra
- From the Editors of Pro Farmer newsletter
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And old-crop corn is being "reallocated."
June 15, 2012
The June issue of Pro Farmer's Crop Tour newsletter is now available. The newsletter, sponsored by Pioneer, is available at www.profarmer.com, or at this link. In the newsletter, we focus on U.S. corn and soybean yield potential and take a look at soil moisture supplies in China. We also have crop reports from Illinois, Iowa, Minnesota and Nebraska. And your invitation to join us on the 2012 Pro Farmer Midwest Crop Tour is included in the June issue of Crop Tour newsletter.
Is old-crop corn being reallocated?
We heard talk today that some end-users of corn are reselling their supplies to other end-users. The only reason they would do that is if basis has appreciated enough that they can make more by reselling their corn supply than they can make from processing what ever it is they process. And, basis has probably done just that.
The same thing happened in the summer of 1996 when the corn market was trying to hold on to the final 400 million bu. of 1995-crop corn. Basis was very strong that summer (it's the summer that turned HTAs into a four-letter word for many marketers), and end-users could easily make more money from reselling corn than they could through processing. When end-users started to reallocate existing old-crop supplies, the rally in basis ended and turned south and the end of the rally in futures wasn't far behind it.
This is something that doesn't happen very often, and when it does, the impact is obvious. Basis starts to fade quickly because some end-users are out of the buying market and competition for corn is much lower. Futures also take a signal from weaker basis and follow with a price slide. Both are a strong indication the market has done its job of rationing old-crop supplies. And once rationing has occurred, the path of least resistance in old-crop futures is to the downside.
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