Fireworks came early for the corn basis. The national average basis started to climb above the five-year average beginning in March. By the end of May, the basis was beginning to climb towards the five-year maximum average basis, surpassing that mark on July 3, and it doesn’t appear to be backing down any time soon.
DTN collects nearly 4,000 corn bids throughout the U.S., with most of those bids collected in the central part of the country. The average of all the bids collected becomes the daily DTN National Corn Index. Since the end of May, the strongest gains can be seen in Eastern Corn Belt (ECB) states, as this was one of areas of the U.S. having the most trouble planting this past spring.
In Illinois, the regional average basis was at 24 cents under the July (N) contract on May 31. On June 26, ahead of the basis roll to the September futures, Illinois average basis was at -20N. If you looked at basis at certain elevators or ethanol plants, basis levels at some of those spots were bid in the range of +10 to +30 above the July futures, according to various comments from farmers and brokers, as well as bids collected by DTN in that timeframe.
Even though corn supplies are not lacking, in the ECB there is concern that in areas of the ECB, like Ohio and Missouri, corn acres not planted may eventually lead to lower stocks, causing end users to have to go outside of their area to buy corn. Some corn from those areas recently moved to the southeast market when drought had become a concern for end users needing corn. Posted basis levels at some plants in Ohio are +65 over the September futures and farmers are reporting that in many of the Corn Belt states, basis has turned positive. Many noted that it is not something they remember happening before at this time of year, as the corn crop has normally been well on its way to “knee high on the Fourth of July.” That’s not necessarily the case this year.
Ethanol Margins Weakened
With the cash price of corn becoming expensive, ethanol margins have weakened and rumors have surfaced that ethanol producers facing negative production margins are considering importing corn from Brazil. For the month of June prior to the basis roll to the September futures, the DTN National Corn Index was up 28 cents, while the national average corn basis was 11 cents stronger.
Producer selling remains slow, especially in the areas of the Eastern and Western Corn Belt where many acres were not planted, and those that were have not seen good growing conditions. In the July 1 USDA Crop Progress report, Ohio noted that for the week ended June 30, “some farmers had abandoned hope for getting all of their corn for grain planted.” The condition of the corn that has been planted was only 31% in the good-to-excellent category, with the majority of the corn in the fair category.
The other two Corn Belt states that showed sharp reductions in quality ratings as of June 30 were Indiana and Illinois, where corn basis has surged. Corn condition in Illinois was 5% very poor, 14% poor, 39% fair, 36% good, and 6% excellent. In Indiana, corn condition was 5% very poor, 16% poor, 40% fair, 35% good, and 4% excellent. In his closing grain comments on July 5, Dana R. Mantini, DTN Senior Analyst, noted that some areas in Indiana are “paying as much as +65U for cash corn.”
Corn and Prevented Planting Acres
Mantini also noted in his July 3 DTN Before the Bell morning comments that there was talk from the USDA that prevented planting acres could be over 10 million and claims could be over $1 billion. He said that, “large corn deliveries against the expiring July futures are being stopped by commercials. The corn basis in the ECB remains very firm with values of as much as 45 (cents) over for new crop, as end users scramble to secure supplies from a farmer who has little interest in selling after a 50-cent break from the highs.”
Nearly half of that break occurred after the June Planting Intentions report that sent the market on a downward spiral, when the USDA said that the corn area planted as of June 1 was estimated at 91.7 million acres, up 3% from last year. However, USDA said in a podcast the same day that, “because of extensive planting delays, USDA will re-survey farmers in 14 states about their plantings.” Those updated numbers will be published in the USDA Crop Production report scheduled for Monday, Aug. 12.
As for prevented planting acres, we should see our first real look in the mid-August Farm Service Agency (FSA) report when the first Crop Acreage Data reports for 2019 will commence to include their “prevented acres” report and also “planted acres (including failed acres),” according to the FSA website. These monthly reports detailing certified acreage from reports from local FSA offices will continue to be updated each month through the end of the year. Since farmers entering the prevented planting program obviously need to do so with their county agents, the FSA reports will be an important source to get a better handle on prevented planting acres and possibly even planted acres.
In the meantime, until this market has a handle on acreage and farmers keep watch on their crop conditions in the areas that are struggling and hoping for improvement, expect the fireworks normally reserved for the Fourth of July to continue for the corn basis.
Mary Kennedy can be reached at firstname.lastname@example.org
Follow her on Twitter @MaryCKenn