Barge Rates Surge As Water Levels Drop

Barge rates from Memphis to the Gulf have surged in recent days as exceptionally low water levels continue to hamper barge traffic. River terminals near Memphis are now paying nearly 40 cents per bushel to move grain to the Gulf, up from 25 cents just a week ago.

Grain merchandisers have been reporting that harvest pressure from an early corn crop and loaded barges stuck near Greenville, MS, has made for a shortage of empty barges. Figure 1 shows the seasonality of barge rates during harvest, but the red line from this year makes it clear that barge rates are surging earlier, and with more intensity, than in years past.

Rising barge rates and an early harvest have both been key factors pressuring basis lower especially for markets to the south of Memphis, TN. Figure 2 displays how this year’s basis lows have been more exaggerated and have also occurred earlier than in years past.

We expect basis to continue declining in the short run as harvest continues in the south and as river levels continue to disrupt barge traffic. The Army Corps of Engineers expects water levels to remain very low through harvest. If this is in fact the case, we would expect a strong rebound in basis at the end of the southern harvest, as grain from northern states have a difficult time moving down the river into the export markets.

It’s going to be a tough year for merchandising. Need help sourcing grain outside your region? Give our office a call and ask about the “Platinum Bid”.

Pro Farmer Tour Driving the Grain Markets

The annual Pro Farmer crop tour is making its way across the Corn Belt this week
with the grain markets eagerly awaiting the results. The outside markets are mixed so
far this week. The Dow fell 217.74 points to settle at 13,057.46 Thursday. Oil continues
its steady climb upwards adding another $1.65 a barrel to trade near $97.83 as of this
writing. Gold is up $54.60 an ounce while the dollar index has fallen sharply. The grains
have had a mostly positive week again.

Corn got a boost early in the week as the Pro Farmer crop tour reported
surprisingly low yield estimates for Ohio and South Dakota on Monday. The market
rallied as a result early in the week only to fall off the last couple. The September
contract has added 9 cents for the week to settle at $8.08 today. Keeping a lid on the
market was Pro Farmer’s yield estimates out of Illinois and Indiana, which were higher
than the USDA current numbers. Export sales met expectations for the week and were
reported as 108,400 MT for ‘11/’12 and 217,000 MT for ‘12/’13.

Soybeans were the leader to the upside adding 54 ¼ cents to $17.25 ¾ on the
September contract. The market is still trying to find a level where it feels comfortable
that demand has been rationed enough to meet the short supply. Also, a typhoon off
the coast of China is set to make landfall this weekend in an area that produces a vast
majority of their crops. Pod counts have been mostly disappointing during the Pro
Farmer crop tour. Export sales were robust again and were reported as 132,900 MT
for ‘11/’12 and 585,800 MT for ‘12/’13.

Wheat has been in the passenger seat for the last few weeks and has only
managed a modest ¼ cent gain. The September CBOT contract ended the day at
$8.74. European and Russian harvests are progressing quickly with yields continuing
to disappoint. A couple of private Russian agencies have downgraded the production
figures this week. Exports were within expectations and were reported as 468,800 MT
for ‘12/’13.

The grain markets will be anticipating the final results from the Pro Farmer crop
tour which will be released at 2 PM CT Friday. The reaction will come Sunday evening
once the markets re-open for trade. In relation to the current USDA estimates, the Pro
Farmer numbers have varied on either side depending upon the state. Some revisions to
both production and demand are imminent in the next round of Supply/Demand reports.

Premium Cash Markets Heat Up

The premium bids continue to climb across the country with a couple locations now posting a +60Z for spot delivery. On average across the US we saw spot corn rise three cents driven by an improvement in average ethanol basis and strong bids by processors. The river locations bucked the trend and closed the week ending Thursday lower by four cents.

Average ethanol basis has been rising since the beginning of August, while the average basis for river facilities has dropped off significantly. This weakness along the river has kept domestic grain processors, feeders and ethanol plants competitive resulting in much of the remaining old crop grain staying inland.

However, when you look at the cash forward curve for ethanol prices compared to river prices you will notice the strength for ethanol is only in the spot market. While the river has a weaker spot price, it actually has much more competitive forward prices for harvest and beyond.

This would imply that while on average it is better to sell any un-priced old crop to an ethanol facility, you might want to look toward the river markets to forward contract any new crop grain. Despite Ethanol’s softer prices in the forward months, we expect ethanol to continue to be a strong competitor in the spot market.

Finally, you will notice a red line around the $8.60 price level. This represents the strongest publicly posted prices for spot, September, October and November delivery. This is a perfect example of how important it is to monitor your regional basis. In this case, the difference between an average ethanol sale and the best basis in the country is roughly 60 cents.

Sideways Trade is a Staple After the USDA Reports

The grain markets have traded mostly sideways after the monthly USDA reports
were released last Friday. The equities continue to slowly plod higher with the Dow
gaining 42.16 points to settle at 13,250.11 on Thursday. Oil continues to move higher
adding another 81 cents a barrel to trade near $95.33 as of this writing. Gold and the
dollar index both lost some value with the metal down $9.50 an ounce to $1,613.0 today.
The grain complex has been range bound this week.

What was seemingly a bullish report for corn last Friday actually led to a bit of
selling. For the week, corn is off 3 cents to settle at $7.98 on the September contract
today. Not only was there massive production revisions made Friday, but demand
forecast were also slashed drastically. Feed use, ethanol use, and exports of corn were all
cut in the most recent estimates. Weather is playing less of a roll in prices as most of the
yield damage is factored in. Demand is now in the driver’s seat. Speaking of demand,
export sales missed expectations and were reported as 122,800 MT for ‘11/’12 and
130,600 MT for ‘12/’13.

Soybeans are also down this week losing 17 ½ on the September contract to close
at $16.55 today. Soybeans rallied last Friday as yield forecasts were reduced as was
expected ending stocks. High prices have done little to curb demand as crushings remain
brisk as do export sales. Expected exports were revised higher in Friday’s report and for
this week were reported as 97,200 MT for ‘11/’12 and 924,600 MT for ‘12/’13. These
sales combined beat analysts’ expectations.

Wheat has been the leader to the downside amongst the grains this week. The
September CBOT contract is down 24 ¼ to settle at $8.62 ¼ today. The winter wheat
harvest is all but wrapped up and the spring wheat harvest isn’t far behind. Ending stocks
for wheat were increased in the latest WASDE report, opening the door for a sell off.
Export sales missed expectations and were reported as 396,700 MT.

The grains have settled into their respective ranges after digesting the revisions
to supply and demand by the USDA. Weather will become less and less of a factor as
we head towards an early harvest this year. Actual yield results will now be holding the
markets’ attention in the coming weeks. South American plantings will also be a topic of
interest in the months to come.

GrainTV – August 2nd, 2012

This morning Logan and Cody discuss export sales data released and take a technical look at the December Corn chart.

Want to watch and trade these markets whenever they are open? Take a demo of our Firetip trading platform and get started!

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THERE IS A SUBSTANTIAL RISK OF LOSS IN TRADING FUTURES AND OPTIONS. FUTURES TRADING IS NOT APPROPRIATE FOR ALL INVESTORS. PLEASE READ OUR RISK DISCLOSURE.

Futures Commentary – August 2nd, 2012

The bulls have been in the driver’s seat for a few weeks now, but the rally seems
to be getting a little tired. The Dow has fallen back below 13,000 after losing 196.78
points on the week to finish Thursday at 12,878.88. Oil continues in its sideways pattern
and is down $2.64 a barrel to trade near $89.34 as of this writing. Gold has lost $30.30
an ounce settling at $1,592.20 today, while the dollar index is up sharply this week. The
grain markets have had volatile trade, but are mostly down on the week across the board.

Corn has been trading around the $8 level for a couple of weeks now, but is down
6 ¼ cents to settle at $7.93 ¼ on the nearby September contract. There has been little
fresh fundamental news to move the market recently and trade volume has slowed which
could indicate the rally is in a holding pattern for now. Managed money is near the
highest point we’ve seen all year on their net long position too. Private analysts are
already making yield revisions lower ahead of the USDA reports on the 10th. Export
sales were at the high end of expectations coming in at 178,400 MT for ‘11/’12 and
23,000 MT for ‘12/’13.

Soybeans have gained 20 ¾ cents on the week to finish trade Thursday at $16.22
¾ on the September contract. The crop is in the pod setting stage and is in dire need of
rain to help prevent further yield reductions. Little precipitation has fallen leading to the
slight uptick this week, while good-to-excellent ratings fell another 3% in Monday’s
report. Demand has not receded as would be expected with the rally over the last couple
of weeks. Export sales were reported as 194,000 MT for ‘11/’12 and 52,400 MT
for ‘12/’13, which was on the low end of expectations.

Wheat has been the leader to the downside this week and is off 36 cents to settle
at $8.63 on the September CBOT contract. Fundamentally, the wheat market is looking
weak as there are sufficient supplies, but world production is a bit of a concern as Russia
and Australia are experiencing adverse weather. Spring wheat harvest is underway with
initial yield results being estimated above last year’s total. Export sales met analysts’
expectations and were reported as 516,200 MT for ‘12/’13.

The bulls need some fresh fundamental news to keep this rally going. We’ve
seen trade volume slow and managed money reach the high end of their net long
positions. Demand is a tale of two stories for corn and soybeans as corn demand seems
to be slowing while soybean demand is holding steady. Next Friday the USDA releases
its monthly Supply/Demand and Crop Production updates.

THERE IS A SIGNIFICANT RISK OF LOSS IN TRADING FUTURES AND OPTIONS.
FUTURES TRADING IS NOT APPROPRIATE FOR ALL INVESTORS.
PLEASE READ OUR RISK DISCLOSURE.