Posted on 09/28/2014 12:57:27 PM PDT by Vince Ferrer
While futures prices suffered at the end of September, the tone in the cash market where farmers actually sell their crops was even worse. The gap between cash and corn futures is below last year's poor harvest levels, and soybeans are faring even worse. Some buyers were still looking for cash soybeans recently, despite historically tight supplies. Those who were out of the market rolled bids to new crop, and the transition to 2014 crop supplies is now complete. Cash prices dropped $3 or more at dome locations in the last week of September, a painful lesson for anyone who hung on too long in hopes of one final rally.
Forecasts for record corn and soybean production this fall, accompanied by rising surpluses, are one reason for the swoon in basis. The nation's grain storage facilities will be filled to the highest percentage of their capacity since at least 1988. Some states will have enough old and new crop grain supplies on hand to exceed the available space.
Farmers built almost 2 billion bushels of new storage capacity over the past decade, and commercial merchandisers added even more. In some areas it still wasn't enough, however. Missouri, Kentucky and Indiana should overfill their bins thanks to big yields. South Dakota has those, as well as a lot of old crop that couldn't be moved due to problems with the rail system that could linger into 2015.
The lack of rail capacity for harvest this year is especially acute. The cost of shipping corn to the Pacific Northwest is running $2.80 a bushel, an all-time high.
But railroads aren't the only part of the transportation system stretched thin. The cost of barges along the inland river system skyrocketed four-fold from spring lows, reaching some of the highest levels on record. A shipper who can find one will pay $1.15 a bushel for a barge to move corn from St. Louis to the Gulf.
During times of surplus crops, more of these costs are passed on to the farmer in the form of weaker basis. But costs for spring barges are some 65 cents a bushel lower. Some of those savings should also reach the farmer too, helping lift basis eventually. Still, weaker than normal basis could prevail.
The prospect for all that basis appreciation will pay off for merchandisers who can buy corn and hedge it, waiting for the gap between cash and futures to narrow. Hedgers have another incentive: carry in the futures market. The spread between July 2015 and December 2014 futures is offering about 4 cents a month.
With storage capacity so tight, those carrying charges are actually smaller than seen in other years when space was at a premium. Carries of 6.5 cents a month were not unusual as recently as 2007.
Carries in part reflect delivery along the Illinois River, where the storage crunch isn't as bad as in the past. The real trouble lies far distant, especially in the northwest Corn Belt, where farmers switched ground from small grains to corn, producing many more bushels in the process. Coupled with rail delays it could make their cash market very tough to swallow.
Corn prices ground to new contract lows as the end of September drew near, failing to hold a couple attempts at consolidation. Good harvest weather should accelerate hedge pressure from merchandisers, and demand news showed some cracks, too. Brazil is still selling corn to countries in Asia that once bought exclusively from the U.S. Biofuel demand was also slack as the summer driving season ended, taking ethanol prices and processor margins sharply lower.
The only potentially bushel factor in the market was acreage, with lingering suspicions farmers may have planted fewer acres than USDA reported at the end of June. Those questions couldn't compete with widespread selling in other commodities triggered by sharp gains in the U.S. dollar. Investors aren't interested in commodities these days, and don't fear inflation.
Another threat looms over the market: Big speculators. They haven't started selling yet and could easily push prices to $3 or lower with a shift bearish.
The only silver lining to this dark cloud was crop insurance. Harvest prices for many policies are based on average futures settlements in October, increasing potential for a payout.
Soybeans closed in in $9 as the last full week of September came to a close. Forecasts for record production here in the U.S. were matched by a fast start to the planting season in Brazil, where recent rains improved moisture after a drier than normal winter in the key center-west growing region.
Soybeans also were buffeted by the stronger dollar. The stronger greenback increased incentives for Brazilian growers to plant because their crop is a hedge against inflation caused by weakness in their currency, the real. Big speculators also kept pressing their record bearish bet on soybeans, in response to weakness in many commodities caused by the dollar boom.
Troubles with commodities also stemmed in part from ideas the Chinese economy is growing more slowly. That's a key concern for soybean growers, because China accounts for two of every three soybeans exported around the world. While U.S. sales for the 2014 crop are at record levels, total Chinese purchases lagged last year's pace despite some big deals announced recently.
Wheat prices are still searching for bottom in a competitive world market that's seeing a dogfight for export business. The cost of U.S. soft red winter wheat finally got cheap enough to win a recent Egyptian tender, sending the cost of French wheat still lower looking for customers.
Supplies of high quality wheat are still fairly limited despite record overall world production. That's sent protein premiums higher but hasn't had any impact on flat prices otherwise. Cheap corn and more plentiful forage supplies this summer may also have limited feeding of wheat, unless it was lower quality.
Wheat basis should begin to strengthen because remaining supplies are locked up tight by those who intend to store it into winter. Futures are another matter, however, despite very oversold conditions. Moisture for seeding hard red winter wheat is improving, with fewer threats to other crops around the world too. Until that changes, prices may continue to struggle.
Damns, the gorebal worming folks can’t seem to catch a break.
Aren’t we supposed to be seeing failing yields and hungry citizens about this time in the end of our planet?
The criminal trio of hussein/holder/jarrett continues to destroy the economy. It’s not by accident but is a deliberate program to reduce American to a Cuban-like third world socialist cesspool.
Lack of rail capacity for agricultural ships - thank the Ogre from Omaha (formerly known as the Oracle from Omaha) ....
They need to get grain their grain processed enough at the farm to make it much more durable. An awful lot of research is being done in this area.
Truthfully, a way around the problem might be for government to ease off its ethanol production restrictions, which are the flip side of ethanol fuel production.
That is, an ethanol plant is a weird thing, with government inspection stickers all over the place, adding a huge amount of cost to making alcohol. And there are those stickers all over the alcohol pipeline until it meets the perimeter fence of the plant. On the other side of the fence, nothing. It is just fuel ethanol in a pipe.
So if the feds allowed ethanol production as long as it conformed to state health and safety rules, these surplus crops would vanish. That is, instead of needing a railroad to transport the crop, the farmer could do it himself in a truck.
I'm kind of in shock but glad I have crop ins price supports, looks like $4.62 for corn and $11.36 for beans.
Last year prices were higher but it was a bad forecast for me then, too; I hung on for awhile and cash bids got a lot better. My small town coop prices are a lot lower than futures at the CBOT, but it's about my only good option.
Part of the problem are sanctions on Russia and the expected bumper crop. Next year is projected to be about the same.
None of mine is harvested yet. Small operation 100 ac corn; 73.2 ac beans this year and I share crop 50-50. Expenses are high. Is it worth it? Yes, so far.
That’s what a bumper crop always does.
Thanks for the post. Are you thinking of switching crops next year, or planting less?
A North Dakota whiskey distillery could be cleaning up right now.
ahh... Maybe that explains why KSU, UNP, and CP have been popping up on my radar. Trucking companies (LSTR, KNX, and ODFL) are shining too..
Quite so. The irony is that the government is afraid of a surfeit of drinking alcohol. But typically, if warehoused, most liquors can be stored for many years.
Imagine how expensive a bottle of the first run of North Dakota 12 year old Bourbon would be. Unfortunately, they would have to import their white oak barrels, which are not just the best wood for wine and liquor barrels, but they are the law. No white oak, no Bourbon.
ND only has Bur and Mongolian Oak, which are not suitable.
Interesting. It hadn’t shown up in my screens even though it’s got such terrific numbers. My screen problem may be my opting for a max beta at 2.0 where ARII is up around 2.7 because of it’s stellar returns.
Dang. Now I got to review my screens all over again 8P
Thank you for asking that question because I've been wrestling with "optimization" without using calculus which I never got good at; I think they have computers to help with number crunching, if then sort of thing.
I thought maybe I should invest in a silo. Well, I know nothing about managing the grain once it's in there as you have to watch moisture levels etc. Plus it costs a lot for propane to dry it. Somehow you have to control air flow. The contract at the coop is merciless on a number of points for farmers who store their own grain and then decide to sell to the coop. Once it's been harvested and hauled to the coop in the fall and then graded and dried, that factor is settled so you can decide whether to pay for months of storage or sell early but know exactly what you are dealing with.
I think my weakness is when I see a price that is good and doesn't involve paying any/many extra months for storage, I sell the whole crop of corn and beans, not necessarily on the same date but close.. I guess most farmers scale their sales.
Haven't needed the crop ins yet even under the old plan with that drought but I think maybe this year that is going to be the only way to go. We shall see.
Farmer from church has a picture of his yield monitor @ 300 bu. Understand that is not unusual for Illinois this year.
A lot of famers already do that. Normally we have a glut of meat, this year being one of the few exceptions. Less grain is being processed at the farm.
A year or so ago The Successful Farmer, obviously a trade magazine, did a special edition on the huge meat surplus and our reliance on exports to help alleviate the burden it causes.
Milk and meat agribusiness get downright surreal.
My crop ins guy has a cheat sheet but I found a website and here is how it's calculated which would be pretty close to how it works. You do not turn your crop over to the ins people; you keep it and sell it at whatever price you can get. If you qualify for Revenue Protection (RP) you get to keep that, too. Sounds good but it isn't. And if you take out more RP like 85 or 90 percent, the premium is naturally a lot higher.
APH = actual production history averaged over a 10 year period per acre. One calculation for each type. And I don't have 10 years because I assumed ownership in 2010.
Insured percentage - 80% (APH X .80 X average May price) then (Actual yield per acre X .80 X October average thru Oct 31). I'm that far and would have to go back to the page where I learned to do it. But I think I made my point. Separate calculations for every grain type, mine corn and beans which are most common.
Now my crop ins man has run some test numbers as of near the end of Oct and it doesn't look like I will get any revenue protection based on yields (which aren't any better than prior years for beans, corn isn't harvested yet).
It was the 80% that did it. Plus there's some dispute over the number of years in my APH now; they have gone back to 2011, thrown out 2008 and 2009, and we have to resolve that.
But I guess you need RP in case you have a crop failure.
The upshot of the whole thing is that I will have to sell at market prices like I always do only this year I think I might gamble, pay more storage and count on a rally. I am not selling corn in the 3 dollar range, may have to at 4. I may have to sell beans in the 9 dollar range. That could be break even which means I made nothing for this year. I think it will be a little on the plus side but not enough to have made it all worthwhile this year. That's the way it goes with farming and risk.
And if I'd cash rented the acres, it would have come about the same this year or I might have netted a little more. Overall, with cash rent, owner pays nothing for seed, fertilizer, chemicals and your soil can suffer as a result. We have been trying to build up my soil to top quality because of past years of depletion by number of factors.
Just thought i'd bring you up to date on it. I guess it's best to just keep rotating corn to beans and the opposite every year as a hedge of sorts and for the sake of the soil which, other conditions being good, results in higher yields. Beans 54 bu acre beans this year. We can't seem to push it higher than that.
I have nothing to take off on my own with it which if I were younger, I would. Women farm now. You have to know equipment and best if you are able to fix things. Big things.
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