Don't underestimate the new players coming into the market..
Sep 27, 2013
Corn bulls were happy to see the International Grains Council (ICG) lower its 2013/14 global corn crop estimate by 2 million metric tons on production problems in both China and the EU. The problem is Ukraine insiders are trumping the news by saying their corn exports could jump by 4 million metric tons compared to last year. It still seems that many players in the corn market have failed to recognize Ukraine's new roll in becoming a much larger global corn exporter. Think about it this way - Ukraine is now expected to export just as much corn as both Argentina and Brazil, all three now estimated to export around 18 million metric tons of corn next year. That's not a whole lot less than we exported here in the US this past year. Moral of the story, there is yet another Costco or Sam's Club opening down the street. The days where everybody that needed groceries came to our local "mom and pop" store are behind us. Global buyers now have choices, and many are starting to shop with the cheaper "low-cost providers." Currently Ukraine is about $15-$20 per ton cheeper to most of are major importers...China, Japan, South Korea and Taiwan. The higher prices we have enjoyed the past few years have definitely changed our customers buying habits. Some will argue it's just a fad, or that global buyers will eventually become frustrated with logistical constraints and untimely deliveries. Remember, that's very similar to what many folks were once saying about the "Big Box" stores.
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Basis levels across the Midwest continue to be very erratic. Some areas are reporting that new-crop basis has fallen back to levels not seen in almost 2-3 years (minus -$0.60 to minus -$0.70). Other areas, where the crops went in the ground extremely late, are reporting very strong basis levels being available for at least another two-weeks (plus +$0.60 to plus +$0.70) . Moral of the story remains the same, if there is any possible way you can deliver and take advantage of the premium it makes a lot of sense. There are all kinds of ways you can re-own on paper, limit your downside risk and continue to speculate on flat price. There is just no real convincing reason, at least in my mind, that you would want to take the risk of losing $0.50 to $1.00 in negative basis swing.