Prices drop, basis rallies

By Jon Scheve, Superior Feed Ingredients, LLC

Last Week:

  • July corn closed the week down 50 cents.
  • December corn closed the week down 40 cents and is down 75 cents from the high about one month ago.
  • November soybeans closed the week down only 17 cents from its highest close of the year.
  • July wheat collapsed a $1.17 and is down $2.37 from the high two weeks ago.

 

Soybeans

Soybeans seems to be the only bright spot, as strong bean export demand continues. For the next 8 months, the U.S. will be the only major source of beans for the world to buy from. Plus, weather has favored planting more corn acres throughout most of the U.S. this spring, so there could be fewer bean acres in the June 30 plantings report as well.

 

Ukraine

The corn and wheat markets are being affected by speculation that Russia may let grain in Ukraine be exported for humanitarian purposes. On June 10 a delegation from Turkey will be in Moscow trying to negotiate a deal everyone can agree on. The potential of a deal has the market on edge. If the deal falls apart, the market will rally, but if a deal is brokered there is more downside risk.

 

USDA report

On June 10 the USDA will release another monthly supply and demand report. While the June report is not usually a major market mover, the trade will be watching export demand. Any increase will likely send the market higher, and any decrease will likely pressure the market lower.

 

Corn futures v. basis

The corn futures decrease seems to be caused by funds exiting the market due to technical signals. It seems that farmers held firm with little to no additional cash sales as evidence by the increase in the basis market across the U.S. The increase this past week was one of the largest weekly gains for basis ever. In the western 2/3 of the Corn Belt basis rallied over 20 cents last week while the eastern 1/3 went up more than 10 cents.

Basis rallies usually mean the market is not getting the grain it needs, so end users need to drive basis higher to incentivize farmers to sell and move their grain. A basis rally this significant should usually indicate a futures rally is coming. However, during strong basis rallies spreads between nearby futures contracts usually also increase as basis rallies, but the opposite happened this past week.

A possible reason for the large rally in basis could be end users’ logistics are messed up. Railroads seem to be running behind, so more trucks are being used to supply traditional rail customers with product. This means fewer trucks are available, especially for those that can haul product from non-rail customers to other non-rail end users. Therefore, some of the basis appreciation this week could be a way for end users to pay massive premiums to incentivize farmers to use their trucks to alleviate commercial freight shortages.

Bottomline

The July corn board has pulled back over $1 per bushel from its highest point of $8.24 on April 30 to $7.20 on June 1. Last year July corn pulled back $1.33 per bushel from its highest tick on May 7 to its low on May 25. July corn futures then eventually rallied and exceeded the May 7 high on June 30 last year.

The corn crop is neither made nor lost during the first half of June. While the basis market suggests futures are currently undervalued, Friday of this week will be a crucial day for the market with both the USDA June report and the Black Sea negotiations taking place.

 

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

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