Cash Market Moves

Forward Thinking: Time to Sell the Carry?

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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Grain piles, like this one in western Iowa, were a familiar scene throughout the Midwest landscape this fall in order to store the large corn crop that most farmers were unwilling to sell. (DTN photo by Elaine Shein)

The corn harvest this past fall ended up in the bin at the farm or elevator and spilled over into ground piles. The cash price deterred many farmers from selling off the combine and they instead stored their corn in hopes the prices get better down the road. Plus, with record soybean production in most of the Midwest, farmers' cash crop of choice since fall has been soybeans.

The market continues to tell the farmers to store their corn for now, which is apparent in the current futures carry we are seeing. As of midday, Dec. 9, the carry from the March futures to December 2017 futures was running about 7 cents per month. Farmers add up their carrying costs which include interest, insurance and storage, in order to determine if and when they should sell their cash crop in 2017. They can book a hedge-to-arrive (futures fixed) contract with their local elevator or they can look at the posted basis for the forward month they want to sell in order to determine their best cash price.

I talked with merchandisers throughout the Midwest to find out when their farmers were looking to sell their corn. In eastern South Dakota, one merchandiser said, "The corn basis levels are better the further out you go out and it doesn't look like ethanol plants are having any trouble finding corn to grind right now, and will not at the very least until all the piles get cleaned up. Local cash bids show a better carry than the futures as far out as May (cash carry 4 cents/month vs. futures carry of about 3 cents), which is nice for on-farm stored corn, but more or less a wash with commercially stored corn."

He also added that there hasn't been much selling lately, but the farmers who are choosing to sell are forward contracting for late winter or early summer delivery because of that carry. However, farmers paying storage at the elevator aren't really "playing" the carry, but are basically just hoping for a better flat price in the future. He also noted that in his area he has seen very little new crop sales at this point.

A merchandiser in central South Dakota said the vast majority of farmers are still mainly flat-price sellers and corn basis in the Corn Belt has remained firm as farmers opted to sell soybeans and pocket ARC/PLC payments to fulfill cash obligations at year-end. "Getting corn from the farmer has been like pulling teeth, and spreads/basis reflect that," he added. "Since the corn flat price is not high enough to induce widespread movement, we will need a flat price rally to get the corn to move or basis and spreads going to have to continue doing the work."

Further west in Rapid City, S.D., Jerry Cope, who does the grain marketing for Dakota Mill & Grain, Inc. said, "There are significant bushels of corn in western South Dakota, but most growers are waiting and not selling the carry. Basis for the feed market is flat and the futures carry in corn looks small compared to winter wheat."

Up in North Dakota where a record corn crop was harvested this past fall, a merchandiser in eastern end of the state said his elevator hasn't had anyone sell the carry on any of the grains. He said he really hasn't bought much corn, other than some sales contracted at a later price. He has done hardly any to-arrive contracts on old crop and no sales on new crop. He feels that there is about 70% of the fall harvest corn left to sell. Another merchandiser in the area said that most elevators weren't giving much of a carry because of the uncertain freight costs and market conditions.

Angie Setzer, vice president of Grain Citizens LLC in Charlotte, Michigan, said that as far as corn forward sales, "We're just getting started with some HTAs in December corn around $3.90 futures. Most of these we will roll forward once carry in the new crop year widens out to traditional/historical levels."


"Right now we've been seeing a lot of bean sales for next harvest/November futures. Many of my guys who have to deliver right at harvest are selling straight cash, because historically basis does not tend to strengthen for harvest beans unless there's a production issue," Setzer said.

Back in eastern South Dakota, the merchandiser there said they are not used to seeing a carry in soybeans and he thinks farmers are wary of that and are holding onto pretty much everything they didn't deliver at harvest. "There is also the 'store and hope' guys who remember the rally last Mar-Jun and have their beans in the bin in good shape so they will hold on for that. Basis gets better the further you get away from the spot market, but then widens out again after March which is probably because we are so reliant on the PNW export program."

He hasn't seen much pricing of old crop soybeans on the recent rally but said if farmers are pricing it, they are likely selling for February-through-March delivery. "I have heard of a few guys pricing new crop pricing via straight forward contracting for harvest delivery though. Basis levels here for new crop are pretty much about where they usually are this far ahead of harvest, -80X to -100X but the flat price is at a profitable level so those that are selling, are forward contracting," he added.

In North Dakota, the merchandiser said their volume is close to double what they do at this time of the year for new crop beans and farmers in his area are somewhat active in the 2017 new crop soybean market. "Old crop beans are probably 65 to 70% sold at this point, some of that price-later sales, with the majority of selling being HTA Nov '17," he said. He added, "It is feeling like they will keep selling beans, then wheat, and someday corn if and when it reaches above $3-plus in his area."

Kent Hamm, buyer for the DeLong Company in Minooka, Illinois, said 99% of his cash purchases during the last 30 days have been soybeans. "The only corn purchases has been very late-harvested fields still standing, coming to the elevator for drying. Most bean purchases have been 50/50 on farm to deliver and the other half (50%) is elevator open storage pricings for Jan. 1 payments. The only HTA trades have been SX7 for new crop beans. I anticipate many more acres of beans next harvest." He's not alone. Most merchandisers I spoke to throughout the Midwest think there will be more soybean acres added next spring.

The current price structure is pretty much telling farmers to plant more soybeans, less corn. But besides price, only time, weather conditions and farmers can tell us what that reality will end up being.

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