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Cash Market Moves
Tuesday, January 28, 2020 2:11PM CST
By Mary Kennedy
DTN Cash Grains Analyst

The DTN national average corn basis started to climb above the five-year average beginning in March. By the end of May, the basis was beginning to climb towards the five-year maximum average basis, surpassing that mark on July 3, and has not looked back since. I wrote about the strong corn basis on July 8, 2019, talking about what was causing all the commotion. Here is a link to that story: https://www.dtnpf.com/…

Fast forward to today: while basis has backed off a little in the Eastern Corn Belt as farmers have started selling cash corn, according to various merchandisers -- that is not the case in the Western Corn Belt, where harvest conditions and quality have been a problem.

I recently did a 2019 corn harvest story that painted a picture of how rough 2019 was (and in some areas is) for new crop corn; another cause of the strength in the basis. https://www.dtnpf.com/…

So, what else is causing the strength in the corn basis? It's not for a lack of corn, especially given the poor export demand we have seen this crop year. In the Jan. 10 USDA report, corn production was forecast at 13.69 billion bushels (bb) with a national average yield of 168 bushels per acre (bpa), 1 bpa higher than the prior month's forecast. Corn quarterly stocks were down 5% from the same time last year. As for export demand, in the most recent WESS report, the USDA said that corn export commitments for the week ending Jan. 16 were 37% below the same time one year ago.

The Jan. 10 report surprised many, given that in December 2019 there was still unharvested corn throughout the Midwest, counted as "on-farm" storage by USDA. However, in the Jan. 10 report, USDA posted a special note that it would resurvey farmers regarding unharvested corn acreage in Michigan, Minnesota, North Dakota, South Dakota and Wisconsin.

On Jan. 3, in the USDA NASS December 2019 "Crop Progress -- State Stories," many of the Midwest states reported on their unharvested corn acreage. North Dakota reported that corn harvest was 48% completed, while Minnesota reported that there was still corn standing that "would likely not be harvested until spring." Minnesota NASS added, "Producers leaving corn harvest until spring cite high moisture and poor test weights as being a big concern, while for other producers it's an issue with field conditions."

Michigan NASS noted that, "Grain condition degraded quickly after Dec. 1. Corn harvest continued in certain locales into 2020." South Dakota reported that harvest was 90% complete, while Wisconsin noted the warm weather in December resulted in muddy fields, slowing down harvest. "Corn and soybean harvest, as well as manure spreading, continued through December. A fair amount of corn is still standing."

One question that comes to mind for some is what the quality of the unharvested corn is, especially in the Upper Midwest where test weight was a problem in the new crop; another case for the strong basis for #2YC, the industry standard that prices are based off.

Many elevator merchandisers have told me that while the lower test weight corn is finding a home at many U.S. ethanol plants, exporters are struggling to make a #2YC grade for export to countries who demand that grade, which is a minimum 54 pounds. Export basis has remained strong to the Pacific Northwest for #2YC and discounts for #3YC, a minimum of 52 pounds, have narrowed recently to just a 5-cent spread.

Also causing some problems for many buyers, not just the PNW, is the Broken Corn and Foreign Material (BCFM, a big problem for many this year because so much of the new crop corn needed to be dried and that increases the broken kernels as the corn is handled more than the norm. The maximum allowed for #2YC is 3% BCFM and #3YC is 4% BCFM.

Basically, we have plenty of corn inventory in the U.S., but not enough good quality corn to satisfy all the buyers.

I spoke to Matt Wiegand, a broker for FuturesOne Risk Management Company in Lincoln, Nebraska, and he told me that in the past week there was a little more basis push because of farmers who have "bin sides with mud or have to truck on gravel" and were unable to do much in the way of loading and moving grain.

I asked him to give me an idea of basis in his draw area. "I'd say that through south-central Nebraska, basis is 3 to 5 cents better than normal and I think the more interesting thing is that some of the more out of the way locations are bidding up a bit more. For example, Red Cloud, Nebraska, shuttle loader was bidding the same as Fairmont within the Cooperative Producers, Inc. (CPI) chain. And usually that is a 3-5 cent spread."

Wiegand noted that eastern Nebraska elevators and terminals seem to be about a nickel better than usual for this period, and northeast Kansas was seen bidding up earlier than usual with Bartlett versus Cargill in the Atchison/Topeka areas. "White corn bidding has been more aggressive than usual with Dorchester Co-op pulling loads forward and having a 10-cent premium to CPI/Andersons and usually that is flat to the other way. Southwest Nebraska has seen some good feedlot bids for picked up relative to local rail facilities, with the farmer picking up about 15 cents at the bin versus delivered."

Angie Setzer, vice president of Grain Citizens LLC said, "We're seeing two very different market structures here in Michigan as of late, with feeders paying substantially more than ethanol producers in an attempt to get bushels moving to them from non-traditional areas, and it seems to be working." I mentioned to her that I had heard that some farmers are not selling right now because of the expectations for a third Market Facilitation Program (MFP) payment. "I'm not necessarily seeing farmers hold tight because of MFP payments, but obviously if cash isn't motivating them and they think they should be getting more for their product, they won't be active sellers," said Setzer. "For me here, we have a decent amount of bushels moving for the typical cash flow reasons as well as quality concerns. The weather hasn't been too terrible around here either, allowing folks to get out and get some loads shipped."

I checked in with her after seeing some recent weakness in basis in the East and Southeast and she told me that feeders are still paying substantially more, but this past week it's just kind of "weaker across-the-board" scenario.

As we continue to see a historical corn basis this crop year, it will be interesting to watch how long this will last as we head closer to spring.

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn

(BE/SK)


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