Corn Basis Explodes, New Crop Futures Lag
May 07, 2012
· Grains lower overnight after a wild trading day on Friday; May corn, now in delivery, traded sharply higher on cash market tightness; May now trading 47 cents over July and 1.46 over December
· Rains over the weekend aiding producers who have finished corn planting, while others wait for a few days of dry weather to wrap up seeding; Conditions remain close to ideal for the majority corn growers
· Outside markets trading wide ranges overnight; Left wing candidate Hollande defeated incumbent Sarkozy in French election; Hollande is first socialist French president in almost 20 years; Hollande is anti-austerity, which causes uncertainty in financial markets around the world
· Informa estimating US corn acreage at 96.12mil and soybeans acreage at 75.8mil on Friday; Both numbers up from USDA’s prospective plantings that was released on March 30th; Many believe that early spring and favorable planting conditions will lead to higher overall acreage
· USDA to release May Crop Production report on Thursday morning at 7:30am CST; Analysts looking for corn carryout near 720mil/bu; Carryout for 12/13 corn expected near 1.7bil/bu; Soybean carryout expected near 220mil/bu, 12/13 carryout expected near 170mil/bu
· Poll of grain analysts forecast China’s corn imports will jump 60% in the year ending September ’13; Imports expected at 7.9mmt vs. 5.0mmt this year; Talk continues to circulate that China is looking to buy US corn on breaks
Favorable weather conditions and bearish macros may keep the grain markets under pressure today. Still, we do not underestimate the upside for the May corn contract during the delivery period. Old crop corn supplies are tight, however extremely strong basis levels and hugely inverted spreads should help ration demand to a great extent. December corn posted a new low close on Friday despite the upside in the May contract. With some analysts looking for a 12/13 corn carryout at 1.7bil/bu or higher, upside will be limited without a significant weather threat this summer.
Soybean prices have been leaking lower since a key reversal was posted in the July contract last week. While supply issues remain, we feel as if a great portion of the production woes in South America have been priced in. We strongly advise that producers have at least 30% of their new crop soybean production priced.
As always, call the office with questions or concerns.