November 27, 2003

 

 

US Farmers Set To Hold Back Grains Sales For Higher Prices
 

Bullish U.S. farmers stopped selling much corn and soybeans over the past week and appear set to hold grain through year-end unless prices make a new charge to post-harvest highs, grain industry sources said.

 

Even Tuesday's jump in prices, with December Chicago Board of Trade corn futures climbing above $2.40 per bushel, did not shake much corn loose as farmers wait for $2.50 corn futures. In soybeans, they continue to eye the fall high of $8.00.

 

It's not surprising to know that the farmers is lurking for higher prices, even with the recent soybean high the best price since 1996.

 

Farmers see strong demand for U.S. crops this fall, led by China and drought-hit Europe, reflected in a strong basis, especially for corn. Exporters, processors and livestock producers have been raising bids to try to pull grain out of farmers' hands to meet immediate needs.

 

On the export side alone, U.S. corn and wheat sales are out-pacing last year's shipments by about 25%. U.S. soy shipments are running about 5% ahead of last year.

 

The export demand has been met by more aggressive competition from the domestic side because of the sharp fall in carry-over stocks at harvest. September 1 corn stocks were down 32% from a year ago while soy stocks were down 16%, according to the U.S. Agriculture Department.

 

So for corn, despite a projected record 10.3 billion bushel crop this fall, Midwest farmers are seeing five-year highs in their cash basis bids from elevators in late November.

 

In central Illinois, for example, the spot basis bid for corn last week averaged 6-1/4 cents lower than the CBOT December futures contract price, compared to the previous five-year high of 6-1/2 cents under December, analysts said.

 

"This kind of basis is surprising. That tells us they're holding corn pretty tight," Darrel Good, extension economist with the University of Illinois, told Reuters.

 

China remains a huge wild card for what happens to U.S. commodity prices.

 

There is speculation that China, typically a net exporter of corn, may cut exports in 2004 and even import corn. China also remains the dominant buyer of U.S. soybeans.

 

But U.S.-China trade disputes that have erupted since last week have added another unknown, feeding worries that China could cut back its voracious appetite for U.S. soybeans.

 

"Things could get pretty exciting. The majority of farmers want to be in the game," Good said.

 

Merchandisers in the western Corn Belt agreed. Basis levels for corn and soybeans in western Iowa are running about 10 to 15 cents higher than a year ago, they said.

 

But many Midwest farmers seem set on higher prices and continue to put crops, mainly corn, under the government's loan program to generate cash. If prices rally during late winter or early spring, they can pull grain out of loan and sell it.

 

"Most of the corn in farmers' storage is going to loan," one Nebraska merchandiser said.

 

By November 19, U.S. farmers had placed 425 million bushels of corn under loan, up 217 million bushels in two weeks -- and 111 million bushels more that what was under loan at the same time last year, according to U.S. Agriculture Department data.

 

Still, corn movement may pick up slightly closer to the end of the year if farmers need to sell grain for tax purposes or to pay bills, the grain sources said.

 

"But longer term, it just feels like farmers are going to hold grain. You don't have to tell them too many bullish things to keep them from selling," said Greg Johnson, a merchandiser with The Andersons in Champaign, Illinois.