Early Harvest Marketing Opportunities
Positive Basis Ups Profit Potential for New-Crop Corn
GARNAVILLO, Iowa (DTN) -- Farmers can capture the best corn basis levels in a decade if they act fast, DTN Lead Analyst Todd Hultman said. He warns strong cash bids from many buyers, especially ethanol plants, that entice farmers to sell and deliver needed corn won't last long as harvest ramps up.
Phillip Meyer and his brother, Nicholas, won't let profitable marketing opportunities pass them by. The Meyers, who farm in far northeast Iowa, started combining corn on Sept. 22. Phillip kept one eye on the 12-row corn head as it devoured plants 3 miles south of Garnavillo, Iowa, and one on his cellphone with local markets on the screen.
He noticed the corn basis -- the difference between the cash bid and the nearby futures price -- at the Big River United Energy ethanol plant in nearby Dyersville was plus 45 cents per bushel. A week later on Sept. 28 (bids can change rapidly), the basis was plus 40 cents per bushel (cash price $7.11 per bushel, December futures price $6.71 per bushel).
Phillip Meyer said some of the family's early harvested corn will be trucked to Dyersville. They will also sell to other area ethanol plants and feed mills with good prices.
"A lot of times in the fall, we'll have a negative basis. But we're currently seeing a positive basis situation (from many buyers)," Meyer said. "We're going to try to get as much corn harvested, dried and shipped as we can to capture the good basis levels."
Hultman said a later-than-normal start to harvest due to late planting in many areas, low corn supplies and strong demand continue to bolster corn prices and basis levels. However, he expects prices and basis to weaken in a week, possibly two, as more new crop is sold to lessen demand.
"I think the window of opportunity will be closing shortly," Hultman said, referring to basis levels of 30 to 40 cents per bushel or higher at some locations. "But in the general scheme of things, we still should have a basis that is good (as harvest continues and during the marketing year) compared to other years because of the situation we're in."
The DTN National Corn Index -- an average of national cash corn bids -- was $6.73 per bushel on the morning of Sept. 28. That was 2 cents per bushel higher than the December futures contract at the time. That is the strongest basis for this time of year in over a decade, Hultman said. The next closest season was 8 cents below the December contract in 2013-14, and the weakest basis of the past 10 years was 45 cents below the December contract in 2017-18.
Hultman said a sub-14-billion-bushel U.S. corn crop as projected by USDA, the tightest corn supplies in 10 years (2022-23 ending stocks projected at 1.2 billion bushels) and little or no competition from Ukraine due to the ongoing military conflict will help support prices.
"There are terrific marketing opportunities now and in the future. But there's also uncertainty ahead with supply chain issues, interest rates and the economy," Hultman continued. "I think there's a really good opportunity to market 50% of your production early, but I would still hang on to at least 50% to see how things look in January and the future South American crop."
Steve Timp, a grain merchandiser for Big River United Energy in Dyersville, said supply and demand is still a big driver of cash bids and basis levels. The Dyersville plant is part of Big River Resources based in West Burlington, Iowa, which operates three other ethanol plants, a feed mill and grain elevators in Iowa, Illinois and Wisconsin.
While basis is positive in Dyersville, it was a negative 52 cents per bushel early in the day of Sept. 28 at the company's Boyceville, Wisconsin, ethanol facility.
Timp expects strong basis levels to continue in places where corn is needed through mid-October. There are plenty of growers in a good position to take advantage of it, he said.
"There are many farmers that plant 100-day or less corn to take advantage of the early transition period, or bridging the gap between old and new crop, to capture good basis levels," he added.
Planting corn with a wide range of maturity ratings -- 96 days to 110 days -- has been part of Meyer Farms' cropping plan for years.
Earlier-maturing corn typically doesn't yield as well as later-maturing hybrids. The Meyers hope overall average yields exceed 240 bushels per acre this year with later-maturing hybrids making up for shorter-season hybrids.
Corn harvested earlier in the fall is usually wetter and costs more to dry than corn combined later in the season due to the amount of moisture removed. Some farmers wait to harvest until corn naturally dries in the field to reduce drying costs. On Sept. 22, Meyer's corn averaged about 26% moisture. It's dried to 15%.
Phillip Meyer said the pros of harvesting corn early outweigh the cons. Here's why:
-- Profit potential improves delivering new-crop corn when demand and prices are higher than when harvest is in full swing. Most of the family's corn is forward contracted using hedge-to-arrive or other contracts that allow them to lock in the futures portion of a cash contract ahead of physical delivery, thereby allowing the basis portion to float with the market and potentially improve.
When asked if paying to remove 11 percentage points of moisture or less to sell corn in late September or early October is financially beneficial, Meyer responded: "Yes, 100%."
Big River Resources charges 3.75 cents per point to dry corn, according to the company website.
-- Phantom yield loss is mitigated. Phantom yield loss is when corn dries down in the field and mass disappears along with the kernel moisture. Learn more at www.agry.purdue.edu/ext/corn/research/rpt94-01.htm. Purdue University research concluded that hybrids lose 0.6% to 1% of yield per point of dry down.
"Phantom yield loss is real," Meyer said. "We will combine corn at 28% moisture or less, but I think 22% to 23% is the sweet spot."
-- It's cheaper to dry corn when kernels are warm than cold.
-- The earlier harvest starts, the earlier it ends. "Once corn matures, it's usually all downhill when it comes to Mother Nature," Meyer said, referring to weather-related yield loss potential.
Matthew Wilde can be reached at firstname.lastname@example.org
Follow him on Twitter @progressivwilde
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