Some parts of the Eastern Corn Belt (ECB) turned to the Northwest "Corn Belt" recently to purchase corn that was not infected with vomitoxin. They needed the corn to blend with their own corn to make it safe for feed use and also to comply with contract specifications for corn they shipped out.
Exporting corn out of North Dakota is not a new concept. In 2012 when the severe drought in the U.S. caused high levels of aflatoxin in the heart of the Corn Belt, North Dakota corn moved to many parts of the affected areas. That year, North Dakota was unaffected by the drought and produced a clean corn crop that was useful to ethanol plants and corn processors in Illinois for blending.
Normally, the FDA does not allow aflatoxin-infected corn to be blended. However, in 2012 they allowed waivers for corn containing more than 20 parts per billion (ppb) to no greater than 500 ppb of aflatoxin to be blended with clean corn pursuant to strict guidelines set by the FDA for use as animal feed. At least six states, Iowa, Illinois, Indiana, Kansas, Oklahoma and Nebraska, were granted waivers for blending to safely feed certain livestock. Clean corn was shipped out of North Dakota with temporary rates from the railroads to help the infected states.
This year, aflatoxin is not the problem, but rather a member of its family, vomitoxin, which was found in some of the corn in parts of east-central Indiana and western Ohio. Vomitoxin occurs when there is too much rain at certain critical growth stages of the corn ear. Ethanol plants in the areas of the infected corn are unable to buy vomitoxin-tainted corn containing over 5 to 7 parts per million (ppm) because the toxin could contaminate the ethanol byproduct, dried distillers' grains, that is sold for animal feed. Vomitoxin-tainted corn can be blended with zero-vomitoxin corn and does not need a special waiver granted by the FDA to do so.
A BNSF shuttle loader in North Dakota told DTN that he knew of at least two North Dakota corn shuttles that were arbitraged in early November from the original delivery point of the Pacific Northwest (PNW) to Indiana. He wasn't sure what freight costs were because the full rate was not published, but he did hear that an ethanol plant in Indiana was paying at least a 10-cent premium for zero-vomitoxin corn, something that North Dakota has plenty of.
According to another BNSF shuttle loader, another reason that the arbitrage worked was because corn basis to the PNW was bid at extremely cheap levels this fall. Besides the fact that there was not much of a corn export program on the PNW, most of the focus was on soybeans for export. Since most of the corn in North Dakota moves to the PNW, elevator basis is set by the price the PNW is willing to pay. However, since the first of November, the BNSF shuttle basis delivered to the PNW moved from +50Z to as high as +72Z last week, which has made the arbitrage to the ECB less profitable.
Shuttle loaders on the CP railroad in North Dakota were in the same position as far as weak PNW basis in early November. The CP shuttle basis was posted at +46Z in early November, but did recover and moved to +60Z last week. A North Dakota CP shuttle loader told me he received calls from a few eastern Indiana and Ohio plants about selling them zero-vomitoxin corn. While the railroad added a tariff rate to Decatur, Illinois, out of North Dakota to move corn to the ECB, he said it is no longer competitive now that PNW basis has strengthened.
Mary Kennedy can be reached at firstname.lastname@example.org
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