June 16, 2008
 

US price hikes causing buyers to steer clear

Farmers looking to cash in on record high corn and soy prices by forward contracting their new-crop harvest may have to look pretty hard to find any takers, as some buyers concerned about cash flow have again 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 and US$15, respectively.

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

"We are bidding for June and July only," said Bunge North America, on a Web page listing cash prices bids for corn and soys delivered to the company's Decatur, Ind., processing plant. The Web page also stated that "all deferred months will be booked on a basis-only contract."

The situation may well spark a strong sense of deja vu, as many grain companies also discontinued forward contracting operations 4 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 rallied this week, on worries that flooding in parts of the Midwest have wiped out millions of acres of crops in some of the most productive portions of the Corn Belt.

Corn acreage is expected to fall from the 86 million acres reported in USDA's March 31 prospective plantings report.