In last week’s entry we discussed the notion of corn’s recent peaks, averaging $4.08 per bushel from mid-January to mid-May.
As of the February 12 close, the spread between March and July corn is only 7 ¼ cents, and from March to December the spread is only 10 cents. While those spreads could widen, adding interest and storage costs makes commercial corn storage look like a risky situation.
“Paying commercial storage is probably fighting an uphill battle right now,” said Kim Holsapple at Total Grain Marketing in Effingham. “We’ve got spreads fairly narrow, basis levels are extremely good. Now I’m not bearish on the basis; I think the basis is going to remain firm in this part of the country for quite some time. But if you’re facing commercial storage at 3 cents a month, or whatever that number might be, basis contracts would be the way to go to stop the commercial storage.”
Like many who watch the markets, Holsapple hopes China will start buying as part of the phase one trade agreement. If it did, and if futures went up because of Chinese buying, basis levels would widen. He says a basis contract would provide farmers with some money up-front for working capital while providing further opportunities if markets rally.
Meanwhile, for farmers who have good quality corn at home, hopes are high for a hot basis as we move further into 2020.
“All our trains are going southeast right now, Holsapple said. “We’re shipping multiple trains per week going into the southeast poultry markets, and actually, we’re shipping a lot of soybeans to Georgia and South Carolina.”
Holsapple says they haven’t shipped anything to the Gulf, which is quite rare. Trains to the southeast means the poultry industry’s demand for corn cannot be met by Ohio and Indiana. If that’s the case today, then what could the price potential be later in the year?
“That’s the big question. If China does come into the U.S. market like they say they’re going to, that’s going to be a big deal from a basis standpoint,” he said. “This part of Illinois is already heading to the southeast. If China would need grain on the CN or the river system, my question is how they’re going to get it. If it’s later in the season, there’s not going to be a lot of grain in this part of the country.”