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Cash grain prices strong despite futures dip

12/05/2011 @ 2:07pm

U.S. cash grain markets remain strong versus futures prices, but could begin to soften as grain begins to move more freely.

A lack of farmer selling has boosted cash market prices and limited losses in futures throughout the fall. Expectations that prices could go higher and farmers' stable financial positions after a year of sharply higher crop prices have encouraged farmers to hold on to supplies.

Farmers have also been busy harvesting the crop and completing fall fieldwork before winter sets in. But that dynamic is coming to an end, Karl Setzer of MaxYield Cooperative in West Bend, Iowa said.

"More grain is starting to flow into the supply line as farmers see an end come to the fall tillage season," Setzer said in a report to customers.

This is particularly true in the Upper Midwest, which was hit with rain and snow over the past few days, Setzer said.

He added that grain movement could increase before the end of the year as "positions are squared up for tax purposes." But other traders say that farmers could remain reluctant sellers until the new year because of tax implications.

For now basis, or the difference between cash and futures prices, remain strong.

Last week cash corn's discount to front-month December Chicago Board of Trade futures shrunk to 8 1/2 cents, from 11 1/2 cents at the start of the week, according to a national cash grain index maintained by the Minneapolis Grain Exchange. Cash soybeans' discount to January CBOT futures shrunk 1 1/2 cents during that time period, to 43 1/2 cents.

But analysts say the strong basis levels could be misleading, as they reflect tight-fisted farmers rather than strong demand.

On Monday, corn basis levels at the U.S. Gulf slipped 3 cents for the spot month. Soybean Gulf basis levels, however, jumped 1 to 5 cents versus futures, according to U.S. Department of Agriculture data.


-By Ian Berry, Dow Jones Newswires; 312-750-4072; ian.berry@dowjones.com
(END) Dow Jones Newswires
December 05, 2011 14:45 ET (19:45 GMT)
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