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Cash corn slumps, demand drops

07/18/2012 @ 3:33pm

U.S. cash grain markets are mixed, with basis levels weakening for corn while remaining firm for soybeans across the Midwest.

Basis is very volatile in the cash market, with slower consumer demand from end users due to high prices weakening corn basis. Meanwhile, tight near-term supplies and outlooks for inventories to tighten further next year are keeping demand for soybeans strong.

"Farmers are becoming more bullish in regards to soybean price potential than for corn, and rightfully so," said Karl Setzer, analyst with MaxYield Cooperative in West Bend, Iowa.

Near-record high corn prices have spurred cash corn movement at a time when demand from processors and livestock feeders slows due to poor profitability margins.

Domestic and export demand for corn has dropped off, reflective of the sharp rise in corn prices.

"Demand for corn has been cut back dramatically in recent weeks," said Dave Marshall, independent grain marketing adviser in Nashville, Ill.

"We have seen a tremendous pullback in corn crushed for ethanol, with production of the alternative energy in the last two weeks falling to the lowest level since Department of Energy began reporting data on ethanol output two years ago," Mr. Marshall said.

U.S. ethanol production dropped to 802,000 barrels a day in the week ended July 13, the lowest level in two years, and down from 821,000 barrels the previous week.

"Since the cost of corn went through the roof, demand for corn used in ethanol has eroded," Mr. Marshall said.

In St. Louis, Mo., an area housing two ethanol plants, corn basis has dropped from 73 cents above September futures to 20 cents over in the past two days, he added.

In central Illinois, a major grain processing area that houses Archer Daniels Midland Co. (ADM) and A.E. Staley plants, cash basis for corn is quoted at 40 cents over September Chicago Board of Trade futures, down from 70 cents over at the same time last week.

Separately, soybean basis is holding firm, as end users find themselves in a situation of scrambling to get coverage as the 2012 crop gets in serious trouble, said Don Roose, president of brokerage and advisory firm U.S. Commodities.

"The U.S. soy crop is shrinking faster than demand is shrinking," Mr. Roose said.

End users are focused on extending coverage, due to the uncertainty of the availability of soybeans into the 2012-13 marketing year that begins Sept. 1.

In weather-related rallies, end users tend to take on more coverage, effectively borrowing from tomorrow's demand, Mr. Marshall said.

"What we are seeing is a frenzy for soybean supplies, as there is fewer inventories available for end users to bid on," Mr. Marshall said. "These limited supplies come at a time when higher prices have not eroded soybean demand particularly to China," he added.

U.S. exporters are paying $1.10 to $1.20 above August CBOT futures for soybeans at the Louisiana Gulf, according to data from U.S. Department of Agriculture.


Write to Andrew Johnson Jr. at andrew.johnsonjr@dowjones.com
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(END) Dow Jones Newswires
July 18, 2012 15:48 ET (19:48 GMT)
DJ U.S. Cash Grain Markets: Cash Corn Basis Slumps; Demand Drops->copyright

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