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GeoGrain: Aggressive Farmer Selling Pressures Spot Basis

GeoGrain: Aggressive Farmer Selling Pressures Spot Basis

18 January 2014

US - Grain basis came under slight pressure this week following USDA's lower corn forecast and strong soybean exports that pushed futures prices higher over the past week.

GeoGrainFarmers were aggressive sellers in the cash market, especially early in the week, helping give a slightly weaker tone to the basis values. U.S. corn basis on average was fractionally lower while soybeans slipped a penny.

In corn, export movement has started to slow with this week's export inspections totaling a meager 20MB as compared to 35 to 40 MB about a month ago. Gulf basis levels for corn slipped 2 cents a bushel on the week, while river terminals were pressured further by an uptick in barge costs. However, the most weakness occurred at ethanol plants this week. Western Corn Belt plants saw losses of 5 to 10 cents a bushel, while Eastern Corn Belt plants were generally down slightly to unchanged. On average ethanol plants as a group lost 2 cents a bushel on the week.

For beans, the overall market was weaker with a one-cent loss on the week. But, river terminals were fairly week with losses of 5 to 7 cents fairly typical along the Illinois and Ohio River regions. At the Gulf, basis levels slipped 2 cents on the week. Bigger losses occurred at soy plants in the Western Corn Belt, with a hand full of plants giving up 10 cents a bushel on the week. The average across all US soybean plants fell 2.5 cents over the past week.

GeoGrain Spot Grain Market

Soybeans Push Higher as Demand Remains Robust

After last week's USDA reports, the grain markets have stabilized other than soybeans that continue to charge higher. Weather in South America and demand has been the main catalysts for the rally. Corn and wheat have stabilized after moving sharply higher in corn's case and sharply lower in wheat's case after the reports. Demand for wheat and corn has not been a driving force as in soybeans.

Corn rallied sharply after the reports last week when the USDA surprisingly slashed expected ending stocks. A revision higher was expected sending the market to recent highs. This week, corn has stabilized above technical support in the $4.25 area. Ethanol production did fall 51,000 barrels per day to 868,000 barrels per day, which is the slowest pace since October.

Export sales did beat analysts' expectations for the week, however. Export sales were reported at 821,000 MT for '13/'14. On the year, sales are running about 218 million bushels ahead of the seasonal pace to meet current USDA projections. Hot, dry weather in Argentina will need to be monitored as a majority of the crop is in the pollination stage and yields could see an adverse effect.

Soybeans have been the leader to the upside over the week. A major rally has been fueled by robust demand side fundamentals and less than ideal weather in South America. Near-term highs were hit on Thursday in the $13.30 ½ area before succumbing to profit-taking. A weather premium has been built in over the last week as forecasts for Argentina have become hotter and drier of late.

Demand for soybeans both domestically and internationally remains robust. NOPA reported the highest ever crush total for any month during December at 165.384 million bushels, which was higher than expectations by about 1.5 million bushels. Export sales beat expectations and were reported at 701,500 MT for '13/'14 and 525,300 MT for '14/'15.

Wheat has entered a period of consolidation after falling sharply following the USDA reports. The lower prices have spurred demand more recently. Egypt has made a couple of purchases of U.S. wheat this week after being absent from our market for quite some time. Brazil has been rumored to be looking to source wheat from the U.S. as well. Export sales did fall within expectations at 319,900 MT for '13/'14 and 82,000 MT for '14/'15.

Demand in the international markets for all three commodities was strong this week, but soybeans were the real highlight as far as price action is concerned. Corn and wheat have consolidated after sharp moves in opposite directions following the USDA reports. Weather in South America and demand both domestically and internationally will need to be monitored in the near term.

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