Market Commentary for 9/15/23
Some in the trade are questioning the national corn yield after USDA lowered it this week. Early field reports I see across the U.S. suggest yields are better than some are expecting. In eight of the last 22 years, the national yield average went up from the September report to the January report, so there is a chance the national yield can still increase.
Corn export demand, on the other hand, is lousy. USDA has estimated it should be running more than 20% higher at this point in the marketing year verses last season, but it is currently running nearly 10% behind last year’s pace. This makes a sustained corn rally difficult even if the yield does decrease in future reports.
Is the U.S. Out of Corn?
Recently some farmers on social media have suggested the U.S. might be out of corn because of the high basis bid values at various locations in the Corn Belt. I don’t think this is likely the reason for high basis bids. Instead, I believe the inverses in futures and the basis market throughout the summer are the reason for the quick ship bids.
An inverse market is when nearby values are higher than prices further out in time. It incentivizes farmers and commercial facilities to move grain and not store it because it is worth more now versus later. It also incentivizes grain buyers to limit their purchases because grain will likely be cheaper later in time, especially as the new crop harvest approaches.
Therefore, it seems likely that end users have been purchasing grain as they need it to try to keep costs down. In June, when the inverse between old crop and new crop futures widened due to dry weather, many end users began planning for the new crop grain to be available in early September. This meant they likely tried purchasing less of the expensive grain midsummer, while waiting for lower basis values as harvest approached.
In July and early August, basis values in the western Corn Belt were at or above +100, but those bids are now between +20 and -20. That is a price drop of 80 cents to 120 cents. End users probably waited until the last minute to buy their late August and September usage because it seemed likely that it would be more profitable for them to scramble and pay for a few loads at higher values before new crop becomes available versus pay the guaranteed higher prices earlier in the summer.
In other words, end users with “quick ship” higher basis bids probably planned to be out of corn as close to the start of harvest as possible. They were likely willing to pay +20, when other end users in the market were paying -20, to avoid paying +100 in early August for their September needs.
I would argue the current higher basis bids throughout the U.S. are not an indication of low supply. Instead, I think most end users understand how an inverse market impacts grain prices and adjusted their plans accordingly to maximize profitability.
Farmers Should Have Set Basis Before July 1.
Farmers who did not set their basis values before July 1 learned a painful lesson about basis inverses. Yes, the dry weather could have caused a futures rally. However, new crop will always significantly push basis values down from July until late September, especially when futures are inverted.
Farmers who held cash grain until now are looking at a $1/bushel basis value drop, which does not include what they missed in futures value during the same time frame. Grain marketing is complex, and it pays to have someone help you understand the dynamics of all the moving parts.
I helped many farmers throughout the U.S. get some of the highest basis values of the year before the steep basis decline in July. If you would like a private grain merchandiser to help you maximize your local basis values profits, like the end users do above, or if you just want more information on how the basis market works in your location reach out to me.
Want to read more by Jon Scheve? Check out recent articles:
Why You Should Never Sell Cash Corn
Yield Uncertainly Continues For Corn And Beans
Even A Decrease In Corn Yield Does Not Mean Prices Will Rally
Does The World Have Too Much Corn? Plus How To Be More Profitable Understanding Spreads.
The War Is Impacting The Corn Market More Than Weather Right Now
Jon Scheve
Superior Feed Ingredients, LLC
