Farm Journal Top Producer Dairy Today Beef Today Pro Farmer AgDay U.S. Farm Report
Agriculture Markets
Futures MO Last Chg
Corn September 566'2 -11'2
Soybeans September 1328'0 -20'0
Wheat September 789'4 -13'2
Milk August 17.20 0.00
Feeder Cattle March 91.250 0.000
Live Cattle August 101.150 0.525
Lean Hogs October 68.450 -2.050
Cotton October 67.10 -1.35

Enter Zip Code below for live local results.

Cash Bids
LDP Quotes
Charts & Quotes
Sponsored Sections
Cash Grain Bids Cash Grain Bids
Get Five Local Grain Prices!
Plant Health Section Plant Health Section
Crop Watch 2008
The Ultimate Farm Truck The Ultimate Farm Truck
Sponsored by Dodge
AgWeb Machinery AgWeb Machinery
Equipment news and resources
Ads by AgWeb

Hurry Up and Wait

9/6/2007
By Greg Vincent
Corn Navigator Logo

The last thing Doug Helm wants is to find himself in a marketing pickle. While marketing advisers are telling farmers to store corn and wait for basis to narrow and cash prices to rebound later this fall and winter, business needs are an important factor in the Montezuma, Iowa, farmer’s decision process.
    Consultants like Jerry Gulke, Top Producer market strategist, suggest that storing the crop until February will pay dividends. Gulke says the market is encouraging storage with the huge market carry from September 2007 to September 2008. (See Market Strategy, page 28.)
    Helm, who has 15% of his 2007 crop forward priced for delivery, takes a portion of his crop to the elevator each fall, even though he knows waiting will improve his basis. The reality of paying bills is the driving force behind his decision to take a basis hit with forward-priced corn.
    “I always like to deliver some to town in the fall, even though basis is generally lower,” he says. “I have bills to pay at the end of the year, and I need to balance my cash-flow needs and income. I don’t want to get into a pickle where I’m forced to sell everything to pay bills.”
    While a Commodity Credit Corporation loan can help meet cash-flow needs, Helm also favors harvest delivery because it speeds his harvest logistics. “We only have to lower moisture to 15%, where if we store it we have to shrink it to 14%,” he explains. “So we can move it faster, reduce storage costs and only handle it once.”
    Because he delivers in the fall, already sold or not, Helm must manage basis. Always a critical issue for farmers, abnormally wide basis levels for corn and soy- beans are making this year more challenging than usual.
     Concern about cash prices is widespread, a survey of Top Producer readers shows. More than half of the respondents say their current basis scenario is worse than their five-year average (see graph).

Past Six Months’ Basis vs. 5-yr. Average     Move quickly. A proactive approach is favored by advisers like Kevin McNew, CEO of Cash Grain Bids. For growers who haven’t yet sold this year’s crop and need to move some this fall, McNew suggests doing so quickly, before the seasonal harvest pressure becomes too significant.
    “If you have to sell at harvest, you had better do it soon, before the 13-billion-bushel corn crop hits the market,” he says. “We’re already seeing the market adjust to it, but I think the reality of it in October is going to be a lot worse in terms of basis.”
     This could be a huge headache many growers must deal with given that 65% of Top Producer readers surveyed report they have less than half of their corn crop sold for 2007 (see graph). Soybeans are in worse shape with fewer than 50% of readers reporting sales of that crop.

    Fast recovery. After harvest, McNew and Gulke believe price and basis will improve quickly. Gulke estimates the market will begin the recovery ahead of USDA’s final crop production report in January and will strengthen as demand for ethanol keeps the market strong.
     “At harvest, we usually see a 30¢ to 40¢ basis in Illinois,” Gulke says. “By May, it’ll be 20¢, so normally we’ve gained 20¢ in the basis, and that’s without ethanol. Now we have this big flux of corn coming and with constant demand, we’ll see an immediate rebound in basis.
    “In futures, I think we’ll see a 25¢ to 30¢/bu. recovery from, say, the first part of November into January,” he adds. So, adding these factors together, those who store could see corn prices improve 40¢.
Percent Sold of 2007 Crop    This strengthening of the market is the same scenario that happened early in 2007 when contract highs were posted for new-crop 2007 futures. There was a euphoria in the market- place and it was anybody’s guess where the market would go.
    That contributed to Helm’s departure from his normal sales pattern. Most years, Helm has 30% to 40% of his crop priced before harvest, but this year, he held off executing marketing decisions in hopes of higher prices. They didn’t materialize and he was forced to wait until the market made a comeback with a summer rally. He did eventually manage to forward price about 15% of his anticipated crop in the $3.50/bu. area.
    So, while he will take the 15% contracted corn and perhaps another 15% to 20% of his crop to elevators this fall, he will still have to store more than 50%, which will allow him to take better advantage of likely basis improvement.
    When Helm acquired cash rent leases on three new farms this year, in each case he was able to negotiate storage as part of the deal. A good deal for him.

    Plans. Helm will hold the remainder of his crop until February, when he expects to sell more of the 2007 crop and begin selling part of his 2008 crop. “I’d like to have 30% to 40% of 2008 sold for harvest delivery,” he says.
    Helm plans to begin his marketing in February and finish his preharvest sales by June or July, something Gulke suggests to his clients.
    “Usually, if you look at the carry in the market, you can get a 40¢ to 50¢ carry into July of the next year,” he says. “So holding six months can get you a good carry in the market. The question is can we handle a 13-billion-bushel corn crop and manage it systematically and efficiently, especially if it all comes at once.”

Factors Causing Current Wide Basis
There are many factors impacting basis this year and creating an abnormally wide spread for both corn and soybeans.
    Kevin McNew, CEO of Cash Grain Bids, says the anticipated huge corn crop for ethanol production is the primary driver.
    “Every time one of these plants goes up, yes, it will consume a lot, but they can’t store a lot,” he notes. “This means the burden of storage is going to then fall back on the farmers and country elevators being able to manage that storage until the ethanol plant can use the corn.
    “The market is going to pay you more to store, and it punishes you more at harvest to discourage delivery,” McNew says. “Basis is always weaker at harvest. It then makes basis go up faster to compensate for the extra carrying costs. So in essence that’s why we’re going to see weaker basis at harvest, because of this glut of 13 billion bushels of corn coming to market.”
    However, barge rates are also contributing to weak basis this year, he says. “There has been exceptional volatility in barge rates the past few years and that volatility continues to manifest itself and jump basis around near the river markets. We’ve seen barge rates really start to move up in the last month or so, and looking ahead to forward prices for harvest, those rates are going to be high again. They’ll continue to put pressure on basis in key areas.”
    Jerry Gulke, Top Producer market strategist, expects basis to improve once rivers start opening up in late February and early March, which traditionally coincides with improved export demand.
    “You’ll see it narrow after the Illinois River is opened back up,” he says. “We usually see that typical February break and you can’t move corn anyway, so in late February to early March, you’ll get the basis appreciation because the export market will come alive again.”

To contact Greg Vincent, e-mail gvincent@farmjournal.com.

Top Producer, September 2007

Printer-friendly version Printer-friendly version

Email Article to a Friend

Your Email:
Your Friend's Email:
Message to add to the body:


© 2008 AgWeb.com - The Homepage of Agriculture
AgWeb.com is a Division of Farm Journal Media, Inc.
Quotes by eSignal delayed 15 minutes