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Final supply clues

08/24/2012 @ 10:26am

The market has been fascinated with the crop tour going on this week. The photos, tweets and nightly yield reports have all combined to produce a lot of yield chatter.  Today, the tour is probably in the best looking fields-areas of northern Iowa and Minnesota.  That and a good dose of liquidation as first notice day for September approaches equal a market sell-off.     

It is getting to the point, however, where yield is declining in importance. These are small crops.  The market knows these are small crops.  How does the market move to reduce use?  When do market participants get clues that supplies are being adequately rationed?  

There are some differences to marketing in this sort of scarce supply situation.  Basis levels are likely to be firmer than many recent harvest seasons.  And the accelerated maturity of these crops means harvesting could proceed so quickly that basis levels start improving a lot sooner than previous years.  

Plus there is no return to storage this year.  The market wants corn and soybeans right now!  This is especially true for soybeans.  November soybeans are a dollar higher than March, 2013 beans.  Why put beans in a bin?

The structure of the corn market is not quite as inverted. Still, this is a year where the market offers no carry to a farmer who puts corn in a bin. Money could be made on basis improvement, but the typical play of selling May or July corn futures to earn the carry does not exist.     

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