Cash Market Moves

In the past three weeks, corn piles have been reappearing in parts of the Corn Belt. This isn't corn from an early harvest this year, though. These are piles of old-crop corn that producers are hauling off the farm to make room for the new-crop harvest.

Angie Setzer, vice president of grain for Citizens LLC, told me, "We're seeing interesting developments with old-crop corn ahead of harvest. Many commercials are turning to piling old-crop supplies to make room for new. And while this is interesting to many and shocking to some, it really shouldn't come as a surprise overall.

"In September, the USDA estimated we would have over 2.3 billion bushels of corn left over at the end of the 2016-17 marketing year. Finding a place to put those bushels ahead of a 14.2-billion-bushel corn projection estimates will test our capacity in the short term, making physical bushels very visible in some locations -- especially those areas where large crops have been the norm these last couple years," Setzer said.

I spoke to a farmer in the Decatur, Illinois, area, and he told me that, "Nearly every elevator has piles already filled before any harvest has started, just to get it out of the way while they had labor and time before new crop comes in." He and another farmer I spoke to not far from the same area told me they have both heard that there are quite a few piles growing around the Decatur area.

Kent Hamm, buyer for the DeLong Company in Minooka, Illinois, told me, "There are huge surplus supplies of old-crop corn bushels in our area that needed to come to market. The grain elevators piled this corn because of the spread and basis opportunities to hold this corn into new-crop demand." I asked him if he knew if the corn in the piles was priced and/or unpriced corn. "Both," he answered. "Some are willing to put in open storage just like they normally would in harvest just weeks away."

Hamm added that another factor can be attributed to the current river conditions. "It has been very dry on the Illinois River the last 30 days and has river stages very low. This seems to be increasing barges rates, so basis has gotten deflated a lot to offset this added transportation costs."

Part of the reason barge freight has spiked is because most of the river system is experiencing low water conditions, which can slow barges and cause draft reductions to be in put in place. Mile Marker 77 on the Illinois River near La Grange Lock and Dam at Versailles, Illinois, was recently closed for a week for dredging after tows ran aground the prior weekend. While the river reopened late in the day on Sept. 22, lock repairs scheduled on the Illinois River between now and mid-October will cause more shutdowns, further slowing or even halting of barge traffic.

The story is much the same in other parts of the Mississippi and Ohio Rivers. Between ongoing lock repairs and low river levels, the news is not good heading in to harvest.

WHAT WILL HAPPEN TO CASH BASIS?

I will admit that I am surprised to see the piles now so close to what is expected to be a very "healthy" harvest. I spoke to a farmer in the Upper Midwest after hearing some of the corn on those piles was unpriced. He said, "It's scary what all that corn could do to our basis this year." I second that.

Setzer said that, "With basis acting as a function of local supply and demand, it really worked to do its job this year. Significant production growth in areas that would not necessarily be considered traditional large producers in addition to multiple large crops in a row in other areas as well as tepid margins allowed some end users to coast when it came to pushing buy basis this year, as there really just seemed to be a continual flow both off farm and out of elevators throughout the year."

If you look back at the basis over the entire 12 months of the old-crop year, you will see that, on average, it really didn't do much, staying flat over the course of the year. In fact, the national average basis sat at the bottom of the weekly average chart for the entire year, unable to at least match the DTN minimum five-year average basis. It's not hard to see why there is so much old-crop corn left in the country: The basis didn't really entice farmers to move large quantities to market. Here is a link to the DTN National Average corn chart for 2016-17: https://goo.gl/…

Setzer told me she will be watching how basis develops heading through harvest. "Significant carry has more than covered the cost of piling this grain, and of course once it's piled, it is not necessarily readily available to the pipeline without significant incentive to move it. If values firm, it would be a sign that new-crop production is less than anticipated, while if they weaken, production equal to or greater than USDA projections are likely in the cards. How values move will likely be a solid indication of what to expect in the months ahead."

She said it is important going forward that farmers take an accurate look at their local grain pipeline. "If you see plentiful stocks readily available and have little concerns regarding production potential in your neck of the woods, locking in decent basis opportunities early will likely pay."

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow Mary Kennedy on Twitter @MaryCKenn

(AG/BAS)

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