Every Monday morning I participate in a conference call with market observers across the Midwest. Some are farmers, some are crop insurance professionals and some work at cash grain elevators or futures desks.
Each call this time of year begins with individual remarks about harvest progress, yields and marketing notes. The comments are always interesting and sometimes surprising.
The trend of the calls is often different from a few of the specific situations. This week, the trend was that, regardless of the drought pressure for much of the growing year, and especially in August and September, the crops were surprisingly good.
The most common theme was of yields better than expected and above trend line. Farmers were selling corn that was above expectations and was surplus to storage capacity. The grain was not being sacrificed at typical harvest gut-slot basis because harvest prices and basis were good, and the cash markets were not plunging in the normal harvest pattern.
Reasons to worry
Then, there were the outliers that worried the listener — that there were underlying problems out there, just waiting to take over the market. Some mentioned that, for those dependent upon moving grain to a river elevator, the bids were going away with the supply of barges.
Basis that had been a dime over the December futures had declined to a dollar under in just a few days. That was a price that was essentially “no bid.” The reason was the current crisis on the Mississippi system that has water levels the lowest since 1988.
Barges are being held up by dredging in some areas and are being loaded to half of capacity in order to clear the lowest waters. The result is a shortage of barges and freight costs at record levels. Since these costs get passed up the system, the farmer ultimately absorbs them.
One farmer noted that his local forecast was for 21⁄2 inches of rain in the next couple of days. Maybe that would help river levels. Another replied that his farm was so dry that he could take that much rain without getting any runoff! That remark reminds us that we are a large country, and there are local problems in any big harvest year.
This year, the problems are more than local, with Nebraska and a large part of Iowa very dry. In Nebraska, the difference between irrigated corn yields and dryland yields is the difference between 230 bpa and 120 in some cases. I heard of soybean yield of 10 bpa in dry areas.
Rail strike
It is not just the river system that has farmers worried. The threat of a rail strike still looms large as corn and soybeans fill up farmer and elevator storage. A few weeks ago the Administration announced that they had helped negotiate a new rail contract with the unions. All that remained was ratification by the union members.
Now, we are getting talk that six of the 12 unions have approved the contract, but the other six still have some doubters. All have to ratify, or the rest will respect picket lines and rail traffic will stop. The sticking point seems to not be money, but what is referred to as a “quality of life” matter involving the ability to call off sick. This is not a matter that is going away, but has just been punted down the field past the coming mid-term elections.
Several observers commented on firm harvest basis. This is especially supported by ethanol producers and feedlots in some dry areas. Those who need a ready supply of corn are bidding up to get the reduced local crops. Texas feedlots may switch from Midwestern corn to Kansas wheat in the ration. U.S. farmers are slow to sell corn that they have room to store, because the numbers seem to indicate that we will get into the summer with a tight supply.
Decline in corn
December futures actually fell over a nickel for the week, but that is not much seeing as we are getting past halfway on the corn harvest and expect lower prices now. The real reason for the decline may be the very slow export pace of corn, which is lagging expectations. We have only sold 52% of the bushels we sold this time last year.
However, it should be noted that last year we had record sales of corn to China, not normally a big corn customer. This year this has not happened, as they have only purchased a third as much so far.
November soybean futures did gain almost 12 cents last week, but it needs to be noted that soybeans are trading at the low end of recent prices, while corn prices have remained firm. December corn prices continue in a range of $6.70 to $7, while November soybean futures were as low as nearly $3 off the June high of $15.843⁄4.
This morning of Oct. 25, November soybeans were at $13.72 after a low of $13.50 a few days ago.
