Cash corn basis was up strongly this week advancing 5 cents a bushel on average across the country while futures prices remained relatively flat on the week. In beans, basis levels moved higher but by only 3 cents a bushel.
Barge rates continued to move lower this week but appear to be reaching a level of stability after sliding nearly 60 cents a bushel in the past 6 weeks. Lower barge rates helped lift basis levels along river terminals this week. Corn basis along the river was up 5 cents a bushel, while bean basis was up 6 cents a bushel.
End users also were up on basis this week as ethanol plants as a group gained 5 cents a bushel. However, double digit basis gains of 10 to 15 cents a bushel were fairly typical in the Western Corn belt this week. For soybean plants, basis level gains were more subdued, posting only a 3 cent advance on the week. While some plants did have 10 cent or better advances, there were a fair number of plants dropping basis by a dime in the Western Corn belt.
Wheat outperformed in the grains this week improving 27 cents, compared to corn which fell 1 ¾ cents during the same time period. Soybeans lost 36 ½ cents for the week ending 12/4/2014. The wheat market moved sharply higher on Monday after Russia introduced new regulations which are likely to curb grain exports out of their country. With the Ruble declining and a bumper crop harvested last year, exports have been thriving, increasing around 30% over last year’s exports at this time. Now Russia is trying to take steps to ensure enough supply is available for domestic use. The Veterinary and Phytosanitary Surveillance Service (VPSS) introduced new regulations to check grain quality, storage facilities and machinery which will most likely result in declining grain exports as it slows the movement and increases the cost to export.
Weather in Ukraine and Russia is also helping to support wheat prices. Freezing conditions in the Volga valley are damaging wheat crops which have already been stressed by a lack of moisture this fall. Falling temperatures and limited snow cover has created winter kill scenario’s that could impact as much as 15% of FSU wheat.
Ethanol production and stocks numbers were reported on Wednesday showing a slight drop in production week over week. Last week was a Holiday shortened week and production numbers were still very strong, but analysts are concerned about longer term demand with the crude oil outlook expecting a depressed pricing environment in the future. Last week ethanol production numbers declined 20,000 barrels per day week over week to 962,000 barrels per day. Ethanol stocks increased 217,000 barrels per day to 17.29 million barrels.
Export sales this week showed wheat sales came in on the low side of expectations only booking 319,200 metric tons for delivery in 2014/2015, down 26% from the week before. Corn booked 1,170,700 metric tons, an improvement of 24% over last week and much higher than expectations which ranged from 600,000-800,000 metric tons. Soybean sales also beat analyst expectations booking 1,179,700 metric tons compared to expectations between 650,000-850,000 metric tons. Soybean export sales fell 16% compared to last week’s totals but was still considered to be a positive sign of strong demand.
Soybeans completed a head and shoulders reversal pattern in the daily chart on Tuesday which is generally considered bearish. However, follow through selling on Wednesday was non-existent as prices found support on the 50 day moving. As prices moved back above $10 per bushel we may see an increase in short covering as traders who established short positions that were triggered by the completed head and shoulders get stopped out of their positions. Fundamentally, Grain Hedge still expects soybean prices to be pressured lower over the next few months.