Grains closed mixed for the week with December corn 15¼ cents higher, November soybeans lost 9 cents, December soybean meal was down $9.10 per short ton and December soybean oil lost 48 points. December Chicago wheat gained 26¾ cents, December Kansas City Wheat was up 10 cents and December Minneapolis wheat was 12¾ cents higher.
A couple of market dynamics are much different this year at harvest than in 2022. Last year, many areas had a positive basis at harvest, which encouraged selling grain off the combine. However, Jerry Gulke, president of the Gulke Group, says this fall basis has fallen apart on soybeans, especially around the river.
“The basis at the Gulf and at Memphis have been really crashing in the beans,” he says. “We’re 65 or 70 cents under for January delivery beans in northern Illinois versus even money or even a premium last year.”
While corn basis has held together better, he says that will not last as harvest picks up.
“Corn is about 33 under for harvest, but they’re telling me that once harvest gets in the full swing of things that too will fall apart,” he says.
The other difference this fall versus last year is there is substantial carry in the corn and soybean markets. Gulke says the end user is saying they don’t need the product right now, but they might need it later and are willing to pay farmers to store it.
So, should farmers store and try to capture the carry? More importantly will that carry be there in the future when it’s time for them to deliver? Gulke says he’s often seen the carry erode in the market and that might be the case again this year.
“I’ve seen in the past where we didn’t earn that carry. In other words, you’re paying me 20 cents more for January and 40 cents more for next May beans. But will you still be paying me 40 cents more when that day comes? Oftentimes that doesn’t happen,” he explains.
Whether or not storage will pay in a winter or spring rally depends a lot on South America’s weather and crop. However, Gulke says he doesn’t think the carry will be there in the spring as their crop comes to market and competes with the U.S. for export business. Plus, farmers need to consider the higher interest rates when looking at the cost of carry.
There are ways producers can capture the carry in the market, according to Gulke, but it can be complicated and takes a considerable amount of time. For example, a producer could hedge against the stored grain for March and pick up 17 cents profit in carry. In March, the farmer will have to decide if they want to deliver for the 17 cents with hopefully better basis or roll to a deferred month.
“That’s a hassle for farmers who really don’t like the futures market to start with. But next year is going to be a year to pay for that education,” Gulke says.
This week’s higher close in corn may confirm a harvest low is in. However, November soybeans closed lower and below the August 8 low of $13.06 and may be open to more downside risk he says, especially after closing below $13 support for two consecutive weeks.
“On a weekly continuation chart, which monitors the lead contract, soybeans closed at lows not seen since May 31. That is when the contract last tested the $13 level, subsequently turning around and rallying nearly $3.00 by July 3.” He says, closing convincingly below $13 on a weekly basis is negative heading into the October WASDE.
For more information on how to capture carry or how to market this year’s crop, contact Gulke at info@gulkegroup.com.
