Weaker corn and soybean cash prices are not helping basis to rally as one would expect. And the continued outlook for large corn and soybean crops this growing season is not helping.
Soybean basis was trading near historical lows at the end of May 2016, as increasing cash prices had kept basis from moving higher. On May 1, the DTN Cash Index was $9.57 and on June 29, pre-USDA report day, the DTN Cash Index was $10.79. As weather conditions improved, the cash price came under pressure and the DTN Cash Index as of July 8 was at $10.24. For the week ending July 8, the July soybean futures contract lost 79 cents, even after rallying 35 1/2 cents on Friday, and November futures lost 79 3/4 cents.
Some soybean processors and exporters found themselves in need of nearby spot supplies and paid up by pushing basis levels. But even with tight nearby supplies, basis remains near five-year lows. After the steep losses since July 1, any farmers with cash beans left have no interest in selling anymore. Farmers who have old crop left, and likely not huge quantities, may be waiting not just for higher prices but also to see how their new-crop beans make it through the next month. One thing to remember is that new-crop soybean yields aren't really determined until August and September, with timely rains and warm conditions key to their success.
A northern Illinois shipper told me he believes farmers are mostly "sold out" of cash beans. "The commercial still has plenty of ownership yet from cheap basis values they bought out of storage on the board run-up April to mid-June," he added. "Exports seem to be very good at the Gulf, so most are holding out for higher basis vs. the July or Aug bean futures."
Corn basis has also been under pressure, which is mainly due to plenty of supplies on hand, along with competition from cheaper feed wheat prices. In fact, soymeal, DDGs and other corn by-products prices may find themselves facing lower prices as feed wheat supplies grow. While demand for corn has been strong, the cash corn price has been victimized by a large new crop that so far is coming along quite nicely. On May 1, the DTN Cash Index was $3.57 and on June 29, the DTN Cash Index was at $3.39 and continues to fall. As of July 8, the DTN Cash Index was at $3.21.
At the end of the pre-4th of July weekend, September corn futures lost 29 cents, but if you add the prior week, the two-week losses in the September futures came to 82 3/4 cents. The December corn contract was down 27 1/4 cents with its two-week losses at 81 3/4 cents. Futures for the week ending July 8 lost another 5 cents, extending corn's losing streak. As for basis, it hasn't moved much either way on average during that same timeframe.
It hasn't helped corn's cause that USDA estimated that U.S. farmers will plant 94.1 million acres and estimated June 1 U.S. corn stocks at 4,722 million bushels, which would be the fifth largest on record if realized. As far as the large expected acreage, the final outcome of that will depend upon the weather. So far, there doesn't seem to be talk of a drought situation and we still have to get through July, which can be a mixed bag of storms, excessive heat and dryness. However, as it looks right now, there is a pretty good sized new corn crop in the making, barring any serious weather events.
DTN Senior Ag Meteorologist Bryce Anderson said, "La Nina conditions (cooler than normal equator-region Pacific, jet stream pattern featuring widespread high pressure over the central U.S.) have not developed yet. Both the water temperatures and the barometric indicators are at neutral. I don't think we'll see full-on La Nina indications until September. There is still a fair amount of El Nino flavor to this feature, and the evolution is acting very similar to the year 1998, which followed a very strong El Nino year 1997. 1998 was a very good year for corn/soy production."
Mary Kennedy can be reached at email@example.com
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