The corn market is sitting at a price where rationing can occur.
On the CME Group exchange, corn futures on Oct. 26 traded with December corn at $7.41, March at $7.43, May at $7.40, July at $7.33 and September 2013 at $6.59 per bushel.
Compared with prices on Oct. 11, December was 32 cents lower, March was 30 cents lower, May was 27 cents lower, July was 27 cents lower and September was 17 cents lower.
“October has been a very difficult month for traders,” said Betsy Jensen, Stephen, Minn., farmer, grain marketer and “Prairie Grains” editor. “If you’ve been excited about the markets all summer long, in October, there has been very little movement in corn prices.”
Jensen compared the October corn market to the game of “Chicken.”
“Who is going to budge first? Are the farmers going to budge and give up and sell their corn? Are the buyers going to realize there really isn’t that much corn left? We’re not sure what this market should be doing throughout the winter,” she said.
With the USDA’s last Quarterly Stocks report published on Sept. 28, the agency will release its next Grain Stocks report on Jan. 11, 2013.
In the October World Agricultural Supply & Demand Estimates report, the corn carry out for September 2013 was estimated at 619 million bushels.
Looking at this number from a historical perspective, the U.S. corn carryout from 2007 to 2009 was 1.6 to 1.7 billion bushels. The U.S. is short about 1 billion bushels in 2012.
At one elevator in western Minnesota, cash corn on Oct. 26 was $7.03 per bushel with a basis of 40 cents under. The price was 18 cents lower than on Oct. 11, but the basis had narrowed by 13 cents.
The high corn prices are very depressing for many livestock producers.
“We are seeing a decrease in demand,” said Jensen. “Corn prices have done their job. We’ve seen demand start to fall off, but we still need to make sure corn prices stay high so that we don’t re-ignite that demand fire once again.”
She reminds growers that the futures markets are forward-looking markets. Compared to the volatility that traders have seen, the leveling off of corn futures in a 20-30 cents range in October could be construed as uninteresting.
The basis numbers – the boots on the ground – change to reflect actual demand for corn at the elevators.
“The basis is pretty strong,” she said. “It’s quite unusual to see the basis offers we are having right now. It’s quite attractive.”
Generally, stronger basis numbers occur during spring planting when everyone is busy and can’t get their corn delivered to town.
A strong basis in October and November indicates that good demand for corn remains – even though the futures market has not changed much.
The corn piles outside of elevators in Minnesota and North Dakota are impressive. The 2012 harvest occurred with record speed, and some areas raised high yields. Much of the corn sitting in bunkers will be shipped out via rail or truck.
“A lot of farmers have corn in their bins, plus most of the farmers harvested dry corn this year,” she said. “It was very easy to put that corn in the bin.”
She pointed out that futures are not offering any incentive to store corn. The corn market remains inverted, meaning the market wants the corn now – not in the future.
If prices move higher, or the basis improves, selling stored corn could offer a profit, but it is a gamble.
Jensen encourages farmers to think about the expenses they have locked in for 2013. Many farmers already know their rent, seed, chemical and equipment costs for next year. Forward contracting enough 2013 corn to pay for expenses could be a strategy farmers want to employ. Futures for 2013 are currently over $6.
“You can sure hold some corn for $8, but I would use a lot of caution on the number of bushels you hold for $8,” said Jensen, regarding 2012-2013 corn. “You want to make sure you don’t end up in the $5 futures range, which is definitely a possibility.”