Grain Barge Rates Sink, Lends Support to Grain Basis

Increases of 10 to 20 cents a bushel in barge rates the past week put significant pressure on river terminal basis. Thanks to strong demand for soybean barging, rates have begun to move higher which pressured river basis levels, with losses of 10 to 20 cents a bushel fairly common along the river system this week.
For the week ending October 25, corn and soybean basis levels were up 1 cent a bushel on average across the country.

In the corn market, Western Cornbelt ethanol plants continue to push hard on basis to meet their needs where +40 basis levels are fairly common by key buyers. In comparison, this time of year those same plants are generally paying -20 on basis. However, other ethanol plants around the country were more moderated, leading to al ethanol plants being up only 0.8 cents for the week. At the Gulf, basis levels were up 2 cents for the week.

For the soybean market, basis levels were also substantially lower along the river with a loss of 10-cents per bushel reported by river terminals this past week even though the Gulf was up 4 cents. Weakness continues through the Carolinas and Mid-Atlantic as double-crop beans continue be harvested in full force. However, soybean crushing plants were up 3.5 cents a bushel this week and gains in the Western Cornbelt were fairly typical as harvest finishes up.

With Harvest About Wrapped Up, Focus Is On Demand

Commentary for October 25, 2012

Harvest is about wrapped up for much of the nation with the USDA pegging
corn at 87% complete and soybeans at 80% in its’ most recent report. Only a couple of
states in the Eastern Corn belt lagging behind with Ohio at 50% complete and Michigan
48%. With harvest nearly complete, the grain markets have shifted focus from supply to
demand and demand has really become a concern.

First, ethanol use of corn is running behind the seasonal pace to meet current
USDA expectations. Our models are indicating that if the current use of corn for ethanol
continues we will fall about 125 million bushels short of current USDA projections.
Feed demand is another area of concern as the Cattle on Feed report from last week
showed significantly lower placement figures than last year at the same time. Export
sales for corn and soybeans were disappointing this week coming in below expectations.
Wheat was the lone bright spot as far as exports were concerned, exceeding expectations.
Despite weak sales this week, corn and beans are still ahead of pace to meet current
USDA projections mostly due to pre-sales from last year, but have slowed drastically
over the last several weeks. It is interesting however; that corn export inspections
(the amount actually being shipped) is lagging behind the pace needed to meet current
estimates. Bottom line is that demand destruction has taken place for corn at these price
levels and prices need to move lower to spur more robust demand.

Technically speaking, for soybeans the November contract is meeting heavy
resistance in the $15.65 to $15.70 area on the daily chart. Providing resistance is the 100-
day moving average and in the area is the bottom of the range that was traded in July and
August. It will most likely take a weather development from South America or stronger
outside markets to push past this level with conviction. In the short term, the upside
potential is rather limited for soybeans.

Looking ahead to Friday, we get the options expiration for November contracts
and the third quarter gross domestic product figures will be released at 7:30 AM central


After Harvest Lows Soybean Basis Rebound Remains Lackluster

The basis lows were printed in the last week of September for both corn and soybeans on average throughout the nation. In just the last week, the national average basis for soybeans improved nearly a cent while corn basis continued climbing, up another 1 1/3 cents on the week. Despite the steady basis improvements observed since the harvest low, soybeans have not experienced the violent snapback in basis that it enjoyed during the same period last year. In 2011 the national soybean basis average improved 14 cents in the two weeks following harvest lows. This year, soybeans has improved a lackluster 3 ½ cents during the same period.

The slow basis improvement seen in soybeans this year could be caused by a number of abnormal events. First, going into harvest we had exceptional backwardation in the futures market. At one point there was almost a two dollar discount for Soybeans delivered July 2013 compared to beans delivered this November. This sort of futures market structure gives farmers incentive to sell beans directly off the combine, and probably played a role amplifying bean sales during this year’s harvest. However, since the height of the backwardation the cash market has adjusted and now provides, on average, a 7 cent carry from spot to Nov, a 5 1/3 cent carry from Nov to Dec and a 2 cent carry from Dec to Jan. The current cash structure should help support further spot basis improvement. Secondly, there is a chance that the soybean basis recovery has been muted as a result of improving yield expectations during this year’s harvest. Recently, we have seen multiple private analysts increase their soybean yield forecasts, and on October 11th we saw confirmation when the USDA raised their official yield forecast from 35.3 to 37.8 bushels per acre.

Across the US:
Soybean basis seemed mixed across the different facility types last week with soybean plants improving their basis by 1 ½ cents, while basis along the river dropped 2 1/8th cents. The gulf remained unchanged.
The increase we observed in corn basis was supported by a one cent increase out of both ethanol plants and the gulf. Despite the slight improvement in corn basis out of the gulf, river terminals remained unchanged as a result of slightly stronger barge rates. Since harvest lows corn has increased 3 ¾ cents, on par with the rate of improvement we observed last year during the same time period.

Harvest Analysis:
We see spot soybean basis improving this week as the upper Midwest finishes harvest. North Dakota went from 93% to 98% harvested in the past week, South Dakota from 94% to 98%, and Minnesota from 95% to 99% harvested. The Dakotas were about 10% ahead of last year’s pace for the week of October 14th. We see weaker basis in the East and Southeast, which may be due to double crop and harvest pressure. Kentucky’s harvested beans went from 34% to 42% last week, Missouri from 20% to 36%, and Tennessee from 24% to 33%. These Southeastern states seem to be just about on par with average percent harvested for the area this time of year.