Corn basis in the country, already stronger than it was a year ago at this time, could get even better in the weeks ahead as harvest pressure abates.
Kevin McNew, president of Grain Hedge in Bozeman, Mont., says the firmer corn basis in the interior U.S. this year has been caused largely by low barge freights that have supported river terminal bids.
“Low energy prices are keeping barge rates really low compared to where they were last year,” McNew explains. “Barge freight plays a major role in what basis is in the interior. And right now it’s pretty cheap to where it’s been to historical norms.”
But it’s not just river terminal bids support cash prices, McNew notes. Generally tighter corn stocks this year and stronger ethanol usage are also contributing to strength in the cash market, he says.
Corn carryout currently is forecast by USDA to fall to 1.561 billion bushels for the 2015-16 marketing year, down from last year’s ending stocks figure of 1.731 billion bushels. Ethanol usage, meanwhile, is figured to increase slightly to 5.250 billion bushels, up by 43 million bushels from last year’s pace.
Arlan Suderman, senior market analyst at Water Street Solutions, notes that strength in the cash market isn’t evenly distributed throughout the Midwest. Corn basis is especially firmer in eastern areas of the Corn Belt that have a deficit of supply, Suderman reported earlier this week on the MarketSense blog. Eastern corn-producing states struggled earlier this season with heavy rains and flood damage that held yield potential in check.
In Central Illinois, USDA reported basis this week at 16 ½ cents under Chicago December corn futures, compared to 29 cents under the board a month ago and 43 cents under the board last year at this time. Further west in Iowa, USDA reported basis for Davenport as strong as 22 cents under Chicago December corn futures, firming by 2 cents in the past month. Last year at this time, basis in the area was reported at 48 cents to 35 cents under the board.
While corn basis is notably firmer this year, McNew advises farmers who are eager to take advantage of the strength in the cash market to instead store grain and hold off for even stronger cash basis to emerge after harvest.
“I think longer term corn has some potential,” he says. “But right now at harvest there’s not just much demand stimulus going on. Generally speaking, once we get past harvest, we get a pretty sharp rally in basis as merchandisers pull the grain out of farmers’ hands.”
USDA reported Tuesday that corn harvest is nearing the half-way mark with 42% of the crop harvested for the week ending Oct. 11, which is nearly in line with the 5-year average of 43% completed for this point of the season.
Adds McNew: “If I’m a farmer and I had to price basis, I don’t want to do it today. I want to be waiting for that seasonal push in November or early December.”
What sort of corn basis are you seeing in your area? Are you holding back grain until things improve?