June 16, 2008

US grain buyers back away from sharp price spike

US farmers looking to cash in on record high corn and soy prices may have difficulty finding any takers, as some buyers worried on cash flow have begun to withdraw from the market.

A spot-check of major interior terminals monitored by Dow Jones Newswires finds that new-crop corn/soy basis has declined by an average of about 4 cents a bushel across the US this week, as futures rallied more than 60-70 cents, to surpass US$7 for corn and US$15 for soy.

Of even more concern to potential hedgers may be the fact that the number of terminals offering traditional forward contracts or popular hedge-to-arrive contracts to producers has declined by about 10 percent since June 6.

Bunge North America said it is bidding for June and July only, listing cash prices bids for corn and soy delivered to the company's Decatur, Indiana processing plant.

Bunge also stated that all deferred months will be booked on a basis-only contract.

Analysts said the scenario may spark a strong sense of déjà vu, as many US grain companies also discontinued forward contracting operations four months ago during a similar grain price-spike led by wheat that caused a cash-crunch among short-hedged grain buyers and a liquidity crisis among some of their lenders.

CBOT corn prices have led a broad grain-sector rally this week, on worries that flooding in parts of the Midwest, particularly eastern Iowa and southern Indiana, have wiped out millions of acres of crops in some of the most productive portions of the Corn belt.

The USDA estimated corn acreage at 86 million acres in its March 31 prospective plantings report, but there are concerns that floods will cause those acres to fall.