November 26, 2008

US corn movement increasing; cash basis coming under pressure


American farmers are finally beginning to market more of their 2008 corn crop, ending an extended period of languid country movement that had offered significant support to cash basis.


"We have seen an increase in cash corn movement," said Karl Setzer, a commodity trade adviser for the West Bend, Iowa-based MaxYield Cooperative. "Harvest is winding down in many regions of the Corn Belt. As harvest concludes, storage is becoming much tighter."


The USDA said Monday that the US corn harvest advanced by 11 percentage points last week, and is currently 89 percent complete.


"We are down to around 1.5 to 1.7 billion bushels [of grain left in US cornfields] and it's likely to drop to under 1 billion by next Monday - so the supplies are starting to increase," said Mike Zuzolo of Risk Management Commodities Inc. "We could be looking at basis slip."


That slippage may have already started, with national cash corn basis dropping off Monday (by an average of about 1/4 cent per bushel) for the first time in weeks, in complete contrast to aggregate gains of 1 1/2 cents seen last week. Most of the basis declines reported to Dow Jones Newswires - of 2-5 cents - was centred in the western Corn Belt, where most of the 2008 corn crop remains to be picked.


"Great weekend weather for late November and that translated into over 950,000 bushels of corn being delivered," said one corn processor. "Corn harvest may be rapidly finishing up most places, but far southern Iowa still has a ways to go, with harvest lasting into the first half of December this year."


Daily cash corn receipts at CBOT-surveyed terminals reportedly reached 577,000 bushels Monday, representing an increase of 8.5 percent from week-earlier levels.


Price, as well as storage considerations, may also be goading some farmers into marketing corn, after watching farm-gate values for their crop dip to a 13-month low late last week.


"US farmers may need to reassess their strong holding stance, in the face of lower prices," said the Hightower Report, which notes that dry weather should allow harvest to continue at a rapid pace this week, as well. "This should allow many farmers to complete their corn harvest. One analyst noted that this may begin to test US farmers' resolve to hold anticipation of higher prices in 2009."


Although corn futures recovered about half of last week's 10 percent loss during Monday's boisterous day-trading rally, December Chicago Board of Trade corn contracts then resumed their freefall overnight, accruing additional losses of nearly 3 cents a bushel, to close at US$3.51 3/4.


"More selling could be ahead," warns Bryce Knorr of Farm Futures. "Long-term chart support doesn't really surface until the US$3.21 to US$3.27 area."


And weakness now emerging in the basis market may persist through the end of the year as well, putting double-barrelled pressure on cash corn prices.


"From looking at my books, there is a lot of corn sold in December to be delivered," said eastern Iowa grain dealer Katy Greiner. "After that, it slacks off."


The USDA currently estimates 2008 domestic corn production at 12.02 billion bushels, representing the second-largest crop in US history.

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