Cash traders question USDA numbers

The big question when grain buyers meet these days is simple: where is the corn?

Processors are struggling to source corn for feed and ethanol production. Basis levels are booming as bids compete for bushels.

Buyers are dubious

The government said there were 2 billion bushels of corn left at the end of the marketing year, Aug. 31, but the buyers are dubious. If there is that much corn, where is it? So, the question has various answers. Was the USDA wrong? Is there a little on every farm, but farmers won’t sell?

It is true that farmers are strong holders of grain, and that many elevators will end the fall with a lot of unused space.

Eventually, that may affect futures prices, but USDA will not change any production figures until the January Inventory Report. They skip any updates in the December reporting.

Demand raises basis

One lesson of basis trading is that demand raises basis, and increased basis bids puts pressure on futures markets that increase the nearby contract price relative to the deferred contracts.

Over time this futures pressure, if the market feels there really is an adequate crop, will increase the futures prices of all the contracts. So, everything gets back to crop size and appropriate price levels.

Some good crops

Some farmers across the country have as good or better crops than they had last year. For example, if you are a dryland Nebraska farmer in an area where many irrigate corn, more rain this summer led to better yields on fields that did get planted.

More lower yields

Most farmers, however, are telling a tale of lower yields and lessor quality than last year. At the extreme, we have growers in the northwest part of the corn belt who have abandoned harvest because they did not see corn mature, and it is in the 40s both in test weight and moisture.

Normal estimates

At the same time, USDA has continued to publish crop production estimates that are close to the norm. The result of that assumed production, coupled with erratic reports of progress on the trade deal with China, is low prices, prices that seem especially low for what farmers think the production really is.

So, they hold everything they can hold in a year when the harvest is slow anyway. They sell only what they have to, or even commercially store, waiting for a rise in price.

Prices drift down

Corn and soybean prices have drifted down to recent lows, as the trade talks are hiccuppy (is that a word?) and the government estimates are disappointing.

On Nov. 19, December corn futures are trading 3.683⁄4, up a penny. The recent low was Nov. 18. As recently as five weeks ago, we had a high of 4.021⁄2.

January soybean futures are trading 9.133⁄4, up 33⁄4, but well below the Oct. 14 high of 9.591⁄2. So, it is critical that these lows hold, and we trade higher as we wait for better marketing news.

In the meantime, many advisers tell farmers to look at selling corn, and even beans in some areas, on basis. The idea is to lock in the high basis that high demand is giving us, and price it with higher futures later.

Buyers are glad to book these bushels just to source them, although they may require 5,000-bushel lots to do it.