Could Wheat And The Retreating Corn Basis Be A “Canary In The Grain Bin?”

Jon Scheve discusses highlights from last week’s USDA report and how prices could be impacted for corn, soybeans, and wheat.

By Jon Scheve

•

January 13, 2025 06:25 AM

Market Commentary for 1/10/25

Arguably the second or third most important USDA report of the year was released today.It was probably the most bullish it could have been for corn and beans.

Corn
Surprisingly, the corn yield decreased 3.8 bushels from November and dropped the carryout to just above 1.5 billion.Considering the yield reports during harvest I received from throughout the US, I was shocked by this yield drop.

Before the report, March corn seemed to be trading a 1.5-to-1.6-billion-bushel carryout.The question now is if the market may have overdone it a little bit with the 15-cent rally.

Corn Basis
The basis market throughout the US immediately pulled back as farmer orders were hit and corn sales began piling up.If the US is tight on supply, then basis long term can’t continue to pull back or stay low.It will need to move higher, or current futures values may not be justified.

Wheat for Feed
The wheat market faced challenges all day after what turned out to be a fairly bearish report for that commodity. However, corn and beans seemed to keep it from falling too much.There are many reports suggesting wheat was actively substituted for corn in the southern US feed markets all week. If this continues, it should limit feed demand for corn in upcoming reports.And, it may mean the lowest carryout of the year has just been established.

Funds
The funds are nearly 75% of the way back to the position they had on when corn was around $8.It is uncertain how much more buying power they have left.

Argentina
All eyes will be on Argentina’s weather for the next month.While it is still early for plant development for most of their production, continued dry weather there could support prices.However, if there are timely rains over the next few weeks, futures may pull back some.

Exports
The USDA’s total corn export estimate is the third highest ever, after crop years 2020 and 2021 when China shocked the world and bought an unprecedented amount of corn.

The case could be made that some of the corn on the books right now was purchased as a protection against a drought in Argentina or Brazil.Therefore, if South America’s weather produces a normal crop, there could be sale cancellations in the near future and prices could pull back again.

Beans
I wasn’t surprised by the bean yield decrease.Producers I spoke with throughout the Midwest said the August dry weather really impacted their bean yields.

While the US soybean carryout is getting tighter, the “elephant in the room” is the upcoming massive Brazil harvest.The sheer size of their crop could keep a lid on futures prices here in the US.However, this report may have helped increase the bottom side of the market that many were concerned with only the day before.

Bottomline:
This report was bullish for corn and certainly favorable for beans, and the market responded with nice rallies for both.Now, with these higher corn values it is uncertain if the market is rationing demand too early.It’s possible the drop in wheat prices and corn basis values are the “canary in the grain bin” suggesting an upcoming change in price trends.

South America’s huge soybean crop will be the next hurdle, along with the unknown of China’s potential trade strategy with the new administration in just over a week.