Has the corn basis peaked?

first_imgShare Facebook Twitter Google + LinkedIn Pinterest Corn basis levels appear to have reached a near-term peak early this month. Ethanol plants in central and western Ohio had reached 26 to 34 over the May CBOT corn. With price rallies the first two weeks in April, it appears plenty of old crop corn was moving from farmers’ bins. In the face of that price rally, corn basis then declined 4 to 9 cents in just a few days. Those price rallies had old crop corn at $4 or higher in numerous Ohio locations. That seemed to be the magic level that producers had desired for months. Corn movement was heavy from farms across Ohio and the Midwest. No doubt those ethanol plants and end users were able to book their needs for at least a month on the corn rally. It will be most interesting to see how the corn basis moves for the next eight weeks. Those weeks will get us though planting season, and into the critical pollination periods of the first two weeks of July.Weather will continue to be a dominant and volatile force for both corn and soybeans this summer. The current El Niño is the strongest in 20 years. It is quickly ending, though, sooner than expected. It is quite common for the end of El Niño to produce dry weather extremes, particularly in the western portion of the Corn Belt. With this in mind, it is no wonder that a prominent weather forecaster’s prediction that the Corn Belt could experience the fifth driest summer since the 1950s generated attention.While the numbers from the March 31 planting intentions report are well known, the price action in the two weeks that followed have been most surprising. The 93.6 million corn acres were quite a surprise to the market, as corn closed 15 cents lower for the day. The market had expected 2016 corn acres to be 90 million acres, slightly above those of the previous year of 88 million acres. In spite of that strong bearish reaction, corn was unable to stay lower or make multiple new contract lows in the days that followed. Then two weeks later, corn was able to close above the previous two month highs.That price action was another case of technicals or chart action being the leading market mover, with the fundamental reality and reasons then becoming well known in the days that followed. Three fundamental factors are in play. First are the dry weather concerns in Brazil that could affect corn production. Second is the pending and potential impeachment of Brazil’s president. Corruption concerns in Brazil along with the Brazilian Real seeing extreme volatility were in the news for over a month. The third factor is corn open interest. Corn in early April reached near record short positions by the funds. Any hint of weather concerns for 2016 corn could have those shorts heading for the exits in spectacular fashion at any time.Soybeans were also able to rally during the first two weeks of April. The second week of April, soybeans closed 39 cents higher for the week. The same weather concerns in South America  were a huge factor. While the dry weather in Brazil was most influential for the corn rally, Argentina was seeing frequent rains, which were delaying harvest. With soybeans not reaching the ports quickly enough, U.S. soybeans were once again the cheapest world source for soybean exports from April through June. It was clearly a case of “risk on,” as buyers were most active, pushing soybean prices above the $9.20 level once thought impossible to break through. Buyers were active enough to push soybean open interest to new records.Traders will be closely watching upcoming weekly ethanol reports. Why? The weekly ethanol production report of April 12 revealed a four million bushel decline in corn usage. In the same week, the April USDA  supply and demand report indicated corn usage for ethanol would increase 25 million bushels to 5.25 billion bushels for the current crop year.last_img

first_imgShare Facebook Twitter Google + LinkedIn Pinterest Corn basis levels appear to have reached a near-term peak early this month. Ethanol plants in central and western Ohio had reached 26 to 34 over the May CBOT corn. With price rallies the first two weeks in April, it appears plenty of old crop corn was moving from farmers’ bins. In the face of that price rally, corn basis then declined 4 to 9 cents in just a few days. Those price rallies had old crop corn at $4 or higher in numerous Ohio locations. That seemed to be the magic level that producers had desired for months. Corn movement was heavy from farms across Ohio and the Midwest. No doubt those ethanol plants and end users were able to book their needs for at least a month on the corn rally. It will be most interesting to see how the corn basis moves for the next eight weeks. Those weeks will get us though planting season, and into the critical pollination periods of the first two weeks of July.Weather will continue to be a dominant and volatile force for both corn and soybeans this summer. The current El Niño is the strongest in 20 years. It is quickly ending, though, sooner than expected. It is quite common for the end of El Niño to produce dry weather extremes, particularly in the western portion of the Corn Belt. With this in mind, it is no wonder that a prominent weather forecaster’s prediction that the Corn Belt could experience the fifth driest summer since the 1950s generated attention.While the numbers from the March 31 planting intentions report are well known, the price action in the two weeks that followed have been most surprising. The 93.6 million corn acres were quite a surprise to the market, as corn closed 15 cents lower for the day. The market had expected 2016 corn acres to be 90 million acres, slightly above those of the previous year of 88 million acres. In spite of that strong bearish reaction, corn was unable to stay lower or make multiple new contract lows in the days that followed. Then two weeks later, corn was able to close above the previous two month highs.That price action was another case of technicals or chart action being the leading market mover, with the fundamental reality and reasons then becoming well known in the days that followed. Three fundamental factors are in play. First are the dry weather concerns in Brazil that could affect corn production. Second is the pending and potential impeachment of Brazil’s president. Corruption concerns in Brazil along with the Brazilian Real seeing extreme volatility were in the news for over a month. The third factor is corn open interest. Corn in early April reached near record short positions by the funds. Any hint of weather concerns for 2016 corn could have those shorts heading for the exits in spectacular fashion at any time.Soybeans were also able to rally during the first two weeks of April. The second week of April, soybeans closed 39 cents higher for the week. The same weather concerns in South America  were a huge factor. While the dry weather in Brazil was most influential for the corn rally, Argentina was seeing frequent rains, which were delaying harvest. With soybeans not reaching the ports quickly enough, U.S. soybeans were once again the cheapest world source for soybean exports from April through June. It was clearly a case of “risk on,” as buyers were most active, pushing soybean prices above the $9.20 level once thought impossible to break through. Buyers were active enough to push soybean open interest to new records.Traders will be closely watching upcoming weekly ethanol reports. Why? The weekly ethanol production report of April 12 revealed a four million bushel decline in corn usage. In the same week, the April USDA  supply and demand report indicated corn usage for ethanol would increase 25 million bushels to 5.25 billion bushels for the current crop year.last_img

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