GIFFORD, Ill. — Old-crop corn combined with basis support
will lead the way into the new year, according to a panel of market analysts at
the Midwest Ag Expo.
“I’m very friendly old crop. There is very little old corn
out there. Basis is going to do a lot of the work. The board may do a little of
the work,” said Greg Johnson of the Andersons in Champaign. “It’s hard for me to
get friendly with new-crop corn and soybeans.
“If you think we’re going to plant 96 million or 97 million
acres of corn, any kind of yield close to normal gives us a 14-billion-bushel
corn crop by fall. So I don’t see $6 corn this fall, if it rains this summer —
and that’s a big if. I understand it’s dry out west, but my point is: When will
we know that we have a problem in Iowa, Minnesota and the Dakotas?”
In reflecting on the 2012 growing season, Johnson said the
central Illinois crop on June 15 looked as if it had the potential for
“I thought the corn looked beautiful on June 15. Two months
later it was a disaster,” he said. “With no subsoil moistures, this crop can go
downhill in a hurry, but if you only get half your normal rainfall in Iowa,
let’s say, and they get 2 inches in April, that’s enough to get the crop planted
“They get 2 inches of rain in May, that’s enough to keep the
crop growing. Now if you only get 2 inches of rain in June, July and August and
it’s 95 degrees, the crop goes downhill in a hurry.
“So new-crop corn is probably going to work lower until we
have some kind of evidence that we have a problem, and that may not happen until
July. So we have five to six months that I just don’t see what’s friendly about
“We’ve had so many days where old-crop corn has been up 7 to
10 cents, and the new-crop corn is up a penny. It just isn’t following along. We
might get to $8 old-crop corn between the board and the basis, and the new-crop
corn may not be much higher than $6.”
Pete Manhart of Bates Commodities in Normal
“Our guys are talking $6.70 low to $7.70 high on old crop
for right now. For new crop, getting through $6 is going to be a problem unless
we have weather problems,” he said. “I remember a couple of years ago when we
didn’t get much rain, but we got it just when we needed it. The drought is out
there. We don’t know where it’s going to be.
“Right now, we’re buying $5.50 puts on new-crop corn until
we get to the first of May just to see if we do go down from South America and
from decent rains. If South America really does have a good crop, we’re looking
at $13 puts on those for the old crop, and if it goes higher, take advantage of
it and go.
“But we’re looking at if you don’t sell anything, buy puts.
If you sell it all and you think it’s going higher, buy calls. We’re taking
protective action to protect $13 on the soybeans and $5.50 on the corn.”
Matt Payne of Bunge Milling in Danville believes corn and
soybean prices will “stay fairly quiet for the next month or so.”
“What won’t stay quiet, I think, is basis. Basis will
continue to be volatile and probably creep its way up for quite sometime. That
is where the farmer needs to take opportunity,” he said. “In terms of futures, I
think it will be fairly sideways for the next 60 days or so.”
Prices are going to be determined by the weather in South
America for the next 30 days, according to Dean Killion of Premier Cooperative
“Currently, we could have the markets rally like they have
because of the hot, dry weather, but then when that harvest starts, we’re going
to see the market shift lower,” he said. “That’s primarily going to be in
soybeans. They have less corn down there.
“In the United States, we’re going to be extremely tight in
corn. There has been no advantage for grain elevators to hang on to grain right
now because this is the best price we get for our grain.
“So whatever grain has been sold to the elevators, it’s also
sold, so that’s going to make the basis extremely higher later on this summer
because not very many elevators are going to have grain — the farmers probably
sold more percentage-wise of the grain they had.
“Earlier in 2012, the prices were really low because we
thought we had big crop. Then the prices rallied, and then the crop wasn’t as
good as it was and you saw a lot of grain sold right out of the field. I don’t
believe there’s very much corn out there to buy from the farmer, and that’s
going to make the basis extremely high later on.”
Soybean prices have been the market leader over the last
couple months partly because of China’s appetite, as well as overall demand for
meal and oil.
Moderator Gale Cunningham, farm director at WIXY, asked
Manhart if he expects soybean prices will remain strong until the Brazil
“Worldwide, we are very tight on soybeans until the South
American harvest is in. The question is: Are they going to have a huge crop or
not? Nobody knows that yet,” Manhart said. “In the north where they’ve harvested
1 or 2 percent, they’ve had too much rain and they’re behind normal. They have I
think a 45-day wait for vessels, so some of that business could come back to
There still is a strong worldwide demand for soybeans.
“China’s profit margin is almost a record high, so they’re
going to continue to buy whenever and whatever they can wherever they can, and
that’s what helped hold beans up this last month,” Manhart said. “Where they
will go? China cancelled 900,000 metric tons three weeks ago, and then they
cancelled another 700,000 the next week, but they bought 500,000 tons one of
“China has all this middle class now that’s eating pork and
chicken. They have to have meal for those. If every Chinese had one more
teaspoon of oil, the oil exports around the world would go up fivefold. They are
a huge market. If they say they don’t want it, we’ll go down. If they say they
want it, we’ll go up.
“It doesn’t matter if South America does have a big crop.
China’s appetite is huge. I don’t see us going back to the $18 unless South
America really has a poor crop and we’re hot here, but our guys in Chicago are
talking about protecting the bottom side to $12 or $13 because if we do have
here, that $15 bean might not be around for next fall.”
Corn trading prices have varied little with exports and
ethanol usage down.
“That’s what these high prices are meant to do. We don’t
have that much old-crop corn out there, and we have to make that last for the
next seven months,” Johnson said. “So $7 on the downside is probably low enough,
but on the other hand, we start destructing demand at $8. We’re going to spend a
lot of time in this range.
“So far, we haven’t been able to get through $7.35, and
people ask why it doesn’t go higher if we really don’t have that much corn. The
answer is: We don’t have that much corn here in the U.S., but worldwide there is
corn in other counties, Ukraine, South America. At the right price, corn will
“The function of the market this year is going to be a
combination of the board price and the basis price. The board price may not go a
whole lot higher than $7.50, but you’re going to see very good basis levels this
summer here in the United States because we still need the corn and we can’t be
using too much corn.
“I think we’ll see higher basis levels as we go into the
spring and summer here in the United States. The board price probably goes up a
little bit in corn, but the basis is going to do a lot of work, as well.”
Along with China’s influence on the market, fund trade also
is responsible for upward and downward swings.
“Funds in general are no different than any speculator.
They’re just big speculators,” Johnson said. “They’re looking for a story, and
if there’s a story out there, and there was this summer — how high can corn and
soybean prices go because of the drought — the funds get interested. They can
sell that to their clients.
“Some of these funds are no more than a collection of people
pooling their money together. So if there’s a story to sell, they can call their
clients and say they should get into the corn market or in the bean market.
“Right now, there really isn’t a lot to talk about. Up until
two weeks ago, both Brazil and Argentina were in very good shape, and right now
Brazil is still in very good shape.”
“An example is California’s teacher retirement system last
year had $3.5 billion invested in the markets,” Manhart said.
“They’ve cut it back in the last two months — that’s part of
the drop — to $1.5 billion.
“They’re moving it over to the stock market because for some
reason somebody has told them the stock market has a story and they are
believing that story, so they’re putting it there instead. If we have a drought
all of a sudden here and it gets worse from the west to us, that story will come
back in and we’ll be wilder than we were last year.”
Payne said end-users are looking to lock in commodities
through the balance of the crop year, “because prices may not go that much
higher on the futures side but, the basis could get very strong here.”
“Just in the last week, local markets have gone up 5 cents
and us as an end-user have gone up even more than that,” he said.
“We’re hearing other processors have gone up 20 to 30 cents
in just the last week as either the bins have been empty since harvest or
farmers are not ready to release what little they have left.
“There just isn’t that much left in the farmers’ hands.”