(Agriculture.com) – Moving into this fall, most expectations were for big corn and soybean crops and potential grain storage issues, resulting in corn piled up outside wherever it could be before delivery to the marketplace.
But, elevators, processors and other terminals were pretty low on supply heading into harvest, which hasn’t been the bin-buster many expected in some areas. The result: A marketplace that features neither a “wide, sloppy basis levels” and nor a storage system that has been taxed to its limits, capacity-wise, by this point in harvest.
“That has just not been the case,” says Cargill senior grain merchandiser in Eddyville, Iowa, Ray Jenkins, saying though the corn crop’s been above-average in his area of southern Iowa, yields have disappointed in other parts of the Corn Belt, causing basis levels to stay at levels below where many farmers are enticed to deliver and sell grain on the cash market. Yet.
But, the preparedness of terminals and end-users and this year’s crop size aren’t the only big variables in play; the grain pipeline, especially for soybeans, is full right now and will likely stay that way through the next 6 weeks to 2 months, says U.S. Commodities broker and market analyst Don Roose. So, there’s ample reason for cash basis levels to stay at lackluster levels for the farmer. Will that keep farmer sales at a minimum through the remainder of fall?
“I think farmers are watching basis carries and thinking about when they will need cash available. Agriculture is hugely capital-intensive. You can say ‘I’m not going to sell corn until next August,’ but you might need money well before that,” Roose says, adding that a 30-cent basis when corn is $3.50/bushel means a lot more than a 30-cent basis when corn’s at $5.00/bushel or beyond. “I think the job of the market is to move up and fill the pipeline the best it can and wait and see how much moves. I think we’ve moved up to where the processor’s got 6 to 8 weeks of [soybean] crush around, and maybe a little more with corn.”
With all this being the case, Roose says time will be a more critical trigger for cash grain sales in the coming months.
“Time will buy more grain this year than price. The producer will need more dollars. If you have a big farm payment and it’s due March 1, as you get close to that date, you need some money,” he adds. “Then, what you can do is re-own it with options strategies.”
Utilizing such a strategy — using options to secure boundaries around price so you’re not burned by drastic moves outside your target price range — can be tough if you’re not accustomed to it. One thing to look out for in transitioning to such a strategy is to jump in too quickly, Jenkins says. Doing so can take your focus away from the bottom line, especially if you’re a “flat-price creature.
“Over time, people get more attuned to basis. Probably one of the worst things that happens is to take someone who’s not really tuned in to basis and all of a sudden, they want to start making big decisions based on it,” he says. “Our needs are finite; we don’t take more corn because basis is wide or take less corn because it’s difficult to buy. That’s just the nature of the process that makes for exciting markets here from time to time. You’ve got to have it. I think that the idea that farmers have got a lot of emphasis on basis is probably misplaced. I still think 90% of farmers are flat-price creatures. If corn was $3.75, they don’t care if it’s 5 cents under or 5 cents over. They just want that $3.75.
“Over the years, we’ve spent a lot of time educating people about basis because we want them to make the right economic decision. If all the carry comes out of the market and you can’t earn anything storing corn any longer, we want them to understand that’s probably a good time to sell the corn, write a basis contract and get a minimum price.”
Moving forward, Jenkins recommends keeping whatever your floor price is in mind when approaching grain sale decisions. Though there will likely be a large crop on hand heading into winter that could disrupt potential price rallies through winter, there will be chances to market grain. Just choose wisely.
“My gosh, 3 or 4 weeks ago, half the people in America were on suicide watch because of $3.00 corn. Now, they’re selling corn for $3.85/bushel and whistling Dixie out the window,” he says. “I had a guy tell me the other day he had to have 200-bushel corn at $4.00/bushel to make his farm run. If he is in that situation, that means a lot of people are as well. If we would sell off into the February time period, which tends to happen a lot of years when you’ve got a pretty good-sized crop you’re lugging ahead, you could end up with a relatively low crop insurance price and I’m almost wondering if you’re not going to see a lot more ground come up for rent.”
Despite the fact grain market prices have slumped to sub-breakeven levels for most farmers, there is a silver lining; this fall’s harvest has dragged along in many areas, but weather conditions have evolved to allow better crop drying conditions, in both the field and bin. This could provide farmers more marketing flexibility heading into the winter months, making them better able to capitalize on any rallies through winter and into spring.
“If somebody has the space, and now that this crop is down into this 15% to 17.5% range and the calendar says November, a lot of guys are comfortable dumping that corn in the bin without heat if they have good aeration on it. One of the features this year has been the massive amount of corn that people are selling and want deferred payment after the first of the year. If I had that space, and I was going to take the money after the first of the year, why not dump it in the bin and see what happens?” Jenkins says. “I don’t think there are many people at these basis levels that would say ‘I want to cash it out at 30 or 35 under rather than wait until December when it’s 10 under.'”
