US food processors, ethanol plants and livestock feeders are still waging a bidding war over the last kernels of the 2010 corn harvest even as they wait for combines to harvest the first corn fields this summer in the South.
Historically high prices suggest that the cash markets, which handle billions of dollars a year worth of the grain, are in a state of flux. According to US government stocks estimates, there should be more corn available.
But anecdotal accounts suggest the quality of the crop is poor in the South, which begins its harvest in July and well ahead of the main harvest in the Midwest in late September.
These quality worries sent the cash basis the differential between Chicago Board of Trade corn futures and the outright price for corn in the river market, which supplies exporters, surging as much as 15 per cent on Tuesday.
Prices have since eased in a classic example of the high volatility in cash markets amid the tightest corn stocks in 15 years and, at this stage, an uncertain Southern harvest.
Exporters are grabbing corn from states such as Louisiana and Mississippi as it enters the pipeline because of the proximity to terminals at the Gulf of Mexico, which handles 60-65 per cent of US grain exports each year.
These supplies also are attractive to the poultry industry centered in the Southeast, and even by cattle feeders in Texas, where the corn crop has been decimated by drought.
Mark Welch, an economist with Texas A&M University’s Texas AgriLife Extension, said cattle feedlots in the state were paying premiums of $1 to $1.50 per bushel above CBOT September corn futures double or triple the typical premiums of 40 to
He said the state was likely to produce only half its normal corn crop of about 250 million bushels this year.
A trader in the Texas cash corn markets said the onset of harvest had pressured basis offers recently. Corn delivered by rail into Hereford, Texas, for example, was bid at $1.13 over CBOT September futures this week, down from $1.25 last week.
Basis bids “have softened a bit as of late because of some of that new crop corn coming in. It takes off demand on some of the fringes,” the broker said.
USDA’s state crop report for Texas this week said the harvest was “in full swing” in the southern part of the state, although the bulk of the state’s crop is farther north.
In neighboring Louisiana, the corn harvest was 13 per cent complete, ahead of the five-year average of 3 per cent.
CBOT corn futures fell on Friday as rains in the
Midwest grain belt helped to reduce stress in the crop that has been wilting under above-normal temperatures.
Corn, with the rest of the CBOT grain complex, was also pressured by the stalemate between Democrats and Republicans in reaching a comprise solution to raise the national debt limit.
September corn was down 11-1/2 cents at $6.70-3/4 a bushel in mid-morning trading. A few cattle feedlots have started bringing in hard red winter wheat to use as feed, easing the demand for corn.
Wheat normally trades at a significant premium to corn, but the scarcity of old-crop corn helped drive CBOT corn prices to an all-time high near $8 a bushel in June and made wheat a viable alternative for some feeders.
Hard red wheat, normally used to make bread flour, traded in bulk into a Colorado feedlot earlier this month, said Joe Christopher of Crossroads Co-op in Sidney, Nebraska.
Soft red wheat, which is grown in the eastern half of the United States, has been trading into hog and poultry feeding operations in the US Southeast for several months.
Christopher said cash corn bids in Nebraska remained firm. “There are elevators around that are down to the last few thousand bushels. Everything else is spoken for,” he said.
Corn still left on farms “is in pretty firm hands right now. Those guys have some lofty ideas about what they want for it,” Christopher said.
Nonetheless, cash corn bids have eased since mid-July at a few locations a signal that some processors may have corralled enough old-crop corn that they don’t need to chase prices higher.
The basis bid at Decatur, Illinois, home to corn processor Archer Daniels Midland Co, last week fell about 64 per cent from the previous week, to 18 cents over CBOT September futures. In Chicago, corn processors had dropped their bids by 33 per cent in a two-week period, to 30 cents over futures as of Wednesday.
From/ Gulf Today