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Bean basis continues to be on fire. My local processor increased their basis bid another 10 cents this week, totaling a 20-cent increase in the last 20 days. While I've seen end user basis values increase throughout most of the Midwest, I have noticed commercial storage locations lagging processor bids quite a bit. My local elevator, for example, has only increased basis 2 cents in the last 20 days.
Storing & Not Selling
Based upon conversations with many grain traders across the US, farmers have sold very little of their 2019 bean production. Usually farmers store their corn at home and deliver their beans at harvest, but many this year are instead storing their beans waiting for better values. A lot of farmers still think a trade deal will happen soon and a big rally in prices will follow.
Some US beans have been sold to China over the last few weeks. While this is good news, it’s important to remember that US beans are more competitive globally right now. After March when South America’s crop gets harvested, US export pace could slow considerably. This could keep futures prices under $9.50 in late spring and early summer.
The market continues to hope for an end to the trade war and expects a swift price increase once its resolved. Unfortunately, despite a promising meeting with China 3 weeks ago, the likelihood for a quick trade war resolution seems to be fading.
On a positive note, the bean carryout estimates decreased by almost half from last year. While this may sound impressive, it would still be the 2nd highest carryout level in over 10 years.
Supply & Demand
For prices to improve, the national yield must be reduced (we'll know more by mid-January) or demand must increase. Demand will need either more crush for soybean meal or an increase in exports likely from a trade war resolution. A production problem in South America could also help, because world buyers would then need more US beans. However, we are still 30 days away from getting into a weather market in the southern hemisphere.
The current corn harvest pace is at 66% finished, which is good considering how late most of it was planted. While it was the slowest crop ever planted, the harvest pace is only the 3rd slowest ever. By this week in 2009 harvest pace was only 50% and in 1992 it was only 37%. This year is only 4% behind the 2017 pace.
In 6 of the last 32 years, harvest wasn't 100% finished by December 1st. In 2 of those 6 years it was below 80%, while the other 4 were above 95%. Most recently in 2009, harvest was 79% complete by December 1st and 95% complete by Christmas. Currently we are expected to be 90% compete by December 1st, and unless there are some big snowstorms in the next few weeks, we should be done before Christmas.
With the bean harvest 85% complete, and farmers unwilling to sell at these low prices, basis values have begun to improve as end users scramble to meet their needs. Hopefully, once corn harvest pace exceeds 85%, end user basis bids will begin to improve in the same way.
Many farmers still don’t believe USDA data and are holding their corn hoping for a yield or acre decrease in the January report. This could mean basis bids will need to work harder to help motivate farmers with better cash values to sell before that report.
While many farmers continue to wait for increased prices, end users seem to be interested in buying at or below the $3.70 futures level. One thing holding back a futures rally above $4 is that it would make US corn less competitive globally, which would suppress export levels. Less exports means less demand and higher carryout, which usually results in lower futures prices.
Without a major acre or yield reduction in the January report, corn futures could remain range-bound for a long time. If futures don’t rally it could mean that basis will be doing a lot of heavy lifting on cash prices this spring.
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