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Market Commentary for 9/18/23

Jon Scheve with weekly market commentary made on September 15, 2023

Some in the trade are questioning the national corn yield after the USDA lowered it this week. Early field reports I am seeing across the country would suggest the yield is better than some are expecting. In 8 of the last 22 years, the national yield average went up from the September report to the January report, so there is a chance the national yield can still increase. Corn export demand, on the other hand, is lousy. The USDA has estimated it should be running more than 20% higher at this point in the marketing year verses last season, but it is currently running nearly 10% behind last year’s pace. This makes a sustained corn rally difficult even if the yield does get smaller in future reports. Do The “Quick Ship” High Basis Bids Mean the US Is Out of Corn? Recently some farmers on social media have suggested the US may be out of corn because of the high basis bid values at various locations in the corn belt. I don’t think that this is likely the reason for high basis bids. Instead, I believe that the inverses in both futures and the basis market throughout summer is the reason for the quick ship bids. An inverse market is when nearby values are higher than prices further out in time. It incentivizes farmers and commercial facilities to move grain and not store it, because it is worth more now versus later. It also incentivizes grain buyers to limit their purchases because grain will likely be cheaper later in time, especially as the new crop harvest approaches. Therefore, it seems likely that that end users have been purchasing grain as they need it to try to keep costs down. In June when the inverse between old crop and new crop futures widened due to dry weather, many end users began planning for the new crop grain to be available in early September. This meant they likely tried purchasing less of the expensive grain mid-summer, while waiting for lower basis values as harvest approached. In July and early August basis values in the western corn belt were at or above +100 but those bids are now between +20 and -20. That is a price drop of 80 to 120 cents. End users probably waited until the last minute to buy their late August and September usage, because it seemed likely that it would be more profitable for them to scramble and pay for a few loads at higher values before new crop becomes available, than to pay the guaranteed higher prices earlier in the summer. In other words, end users with “quick ship” higher basis bids probably planned to be out of corn as close to the start of harvest as possible. They were likely willing to pay +20, when other end users in the market were paying -20, to avoid paying +100 in early August for their September needs. So, I would argue the current higher basis bids throughout the US are not an indication of low supply. Instead, I think most end users understand how an inverse market impacts grain prices and adjusted their plans accordingly to maximize profitability. Farmers Should Have Set Basis Before July 1st Farmers who did not set their basis values before July 1st learned a painful lesson about basis inverses. Yes, the dry weather could have caused a futures rally. However, new crop will always push basis values down significantly from July until late September, especially when futures are inverted. Farmers who held cash grain until now are looking at a $1/bushel basis value drop, and this does not include what they missed in futures value during the same time frame. Grain marketing is complex, and it pays to have someone help you understand the dynamics of all the moving parts. Reach out to me if you want more information on how the basis market works in your location.

Jon Scheve Superior Feed Ingredients, LLC

9358 Oak Ave Waconia, MN 55387

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