Cash corn still rising as supply tightens
FORT?DODGE – For the past three weeks, grain buyers have been aggressively bidding cash corn trying to wrest what old crop farmers still have stored in bins or at elevators.
In a typical marketing year, the local corn supply gets tight. But 2011 is anything from typical.
Across the Farm News coverage area, elevators have been bidding well over Chicago Board of Trade futures – a range of 20 to 30 cents over basis, with ethanol plants even higher.
Valero in Fort Dodge closed July 22 cash bidding for local corn at $7.22 per bushel, 32 cents over basis.
POET in Gowrie closed July 25 bidding at $7.25, 41 cents over basis.
POET in Jewell, closed July 15 bidding at $7.26 per bushel, 25 cents over basis.
POET in Hanlontown closed July 26 bidding at $7.21 per bushel, 32 cents over basis.
Although grain buyers will say it’s not unheard of for local grain to be priced over CBOT futures, it is unusual for this suspended length of time.
Chad Hart, an Iowa State University economist, said part of the dynamics involved is that most of the corn still in storage “is spoken for.”
He added that a lot of central Iowa corn was sold soon after it came out of the field and another large batch during the early months of 2011.
“Those who have hung on (to their corn) have seen prices do well for them.
“It’s a seller’s market, only there aren’t too many sellers.”
Commodity broker Ron Mortensen, of Advantage Agricultural Strategies, in Fort Dodge, said the shortage is real, not a matter of farmers hoarding grain looking for even better prices.
He said this will likely continue until mid-to-late-September, since central Iowa corn will be a few weeks tardy getting out of the field.
The U.S. Department of Agriculture’s June supply and demand report estimated the corn carry-over for the 2010 crop would be 900 million bushels.
“That’s a tight supply,” Mortensen said, adding that enduser groups will be grinding corn for a month before the 2011 crop rolls out.
He expects the possibility of volatility in the cash price once the new corn crop begins to flow.
“You could see it go from 20 to 30 cents over (basis) to 20 to 30 under (basis) in a matter of a few hours.”
Hart and Mortensen said a similar scenario was seen in 2008 when soybeans were cash bid at upward to $1 over basis in late summer, until the new crop was harvested and prices fell back to more traditional levels.
Chuck Schafer, manager of the North Iowa Co-op, serving clients across Cerro Gordo County, attributes the current cash corn situation to three factors – tight supply, good demand and a weak dollar.
The supply is tight, Schafer said, because “most corn is priced.” The corn that remains under ownership by a farmer has been already sold on contract and is waiting delivery.
“The supply could be tight going into September,” said Schafer.
Schafer did see the possibility of some corn being harvested ahead of soybeans because of crop progress.
While weather markets are typical this time of year, this summer’s weather market is extremely volatile, said Karl Setzer, market analyst and grain solutions team leader for MaxYield Cooperative in West Bend. The cash market has been higher than deferred bids by 15 to 20 cents in the current inverted market.
“Right now, the slightest change in the weather can make a huge impact in the market,” said Setzer, who noted that July futures were so high that many elevators and grain processors were taking their bids off the September futures.
Several other factors are making grain market reactions even more pronounced, including the possible default by the U.S. government, financial instability in Europe and uncertainty about grain consumption levels.
“It would be unprecedented to have new-crop corn coming out as low as 300 million bushels, but the possibility exists,” said Setzer, who urges farmers to avoid becoming complacent with the markets.
Consider the uncertain future of ethanol subsidies.
“All it takes is the stroke of a pen to eliminate the subsidies, and then all of a sudden you’ve got 5.1 billion bushels of extra corn, which could take the corn market from $7 to $3. While this situation isn’t likely, you can’t rule it out, either.”
Weather also remains a wildcard. While July of 2011 will be recorded as one of the hottest in recent years, the crops are looking good, overall, in key states like Iowa and Illinois.
“In fact, the three “I” states of Iowa, Illinois and Indiana can produce enough corn in a good year to offset losses in other states,” Setzer said. “The weather market is far from over, however. The futures market is always looking ahead and it’sworried about what might happen two weeks from now.”
Setzer advises clients to determine their break-even levels and make a game plan to market grain above those levels.
“With corn at $6.25 to $6.50 and soybeans over $13 out of the field, those are some very attractive prices.
“At least make some small sales and hope they are the worst ones you make.”
According to a July 25 USDA’s National Agricultural Statistics Bureau, 80 percent of Iowa’s corn crop is in good-to-excellent condition.
“Compared to what it’s been through,”?Hart said, “things are looking pretty decent.”
The same assessment was made for the eastern?Corn Belt, he said. “Getting planted late seems to have benefitted them.”?He was referring to eastern Iowa, Illinois and Indiana.
“The heat wave hit them before pollination.”
Hart said the 2011 growing season is in a crucial stage – grain fill – and he wonders if 2010 weather will be the same this summer.
“Will overnight temperatures be too high?” he asked. “You like to have it at 60 degrees for sleeping.
“Corn is the same way.”
Farm News staff writers Darcy Dougherty Maulsby and Clayton Rye contributed to this report.
Contact Larry Kershner at (515) 573-2141, Ext. 453 or at firstname.lastname@example.org.
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