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Basis strong as grains digest USDA data

This week the US grain market was still digesting last Friday’s Planting Intentions and Quarterly Grain Stock reports. Quarterly Stocks for both soybeans and wheat were at the low end of expectations, but corn came in sharply below trade expectations at 6.01 billion bushels. Planted acreage also brought surprises, as the USDA projected a bin-busting 95.9 million acres of corn and a lower than expected 73.9 million acres of soybeans to be planted this spring.

With tighter than expected old crop stocks and larger than expected planted acreage, the July December corn spread climbed above 120 cents this week, the highest level since February of 2011. Old crop corn futures have been trading a range in the last several months, and we expect significant technical resistance at 675-680. With how tight old crop stocks are we certainly see the potential to break out of this range to the upside, but producers that are sitting on old crop corn should consider making cash sales around this area on a percentage of remaining bushels. Cash basis remains the highest we have seen in nearly a decade, with many elevators bidding old crop corn above the May contract.

Soybeans have continued to be the leader to the upside in the grain market, with soybean contracts through August trading above 1400 in Chicago. The lower than expected soybean acreage in the USDA’s Planting Intentions Report confirmed that soybean stocks could be tight throughout the next marketing year. As a result, the soybean market has been bidding up the November contract - adding 19 ½ cents during this short trade week. The new crop soybean/corn ratio is now above 2.50, well above the 2.40 mark that most of the trade has been viewing as the area where soybeans will gain a profitability premium, per acre, over corn. However, private analysts and anecdotal evidence from producers both indicate that many farmers have already made planting decisions, and corn is still king. At this point, we will have to see significant planting delays this spring to move acres out of corn and into beans. Given the most recent 30-60-90 day forecast and dryer then normal sub soil moisture conditions across the Western Corn Belt, this scenario seems unlikely.

The US Winter Wheat crop is off to a great start this year, with Monday’s Crop Progress Report showing 58% of this crop rated good to excellent. This compares to 38% rated good to excellent last year at this time, and many producers across the southern central plains are saying that this is the best Kansas City Wheat crop they have seen in years. Continued moisture across the southern plains have helped alleviate drought conditions in many areas of Kansas, Oklahoma, and Texas, but keep an eye on weather as a spring freeze could harm this early emerging crop.

After weeks of delving into corn and soybean basis we turn our attention to Chicago and Kansas City wheat. With the first crop progress report of the year released this week we see that the winter wheat crop is shaping up well so far.

Currently, 58% of the crop is rated good to excellent, an increase of around 21% from last year. Not only is the crop looking better this year but there is also an estimated 41.7 million acres being planted.

According to the prospective planting report released at the end of last month, winter wheat acreage looks to increase by around three percent from 2011.      

Chicago wheat new crop basis since the beginning of the year has been an average of 30 cents stronger than the maximum new crop basis levels seen in the last five years and 66 cents stronger than the five year average. Just within the last week new crop SRW basis moved up a penny.  These strong basis levels still persist among futures prices that are right on target with the five year average.

Kansas City wheat new crop basis has not shown nearly the gains of SRW but is still sitting about  13  cents  above the five year average. In the last seven days HRW new crop basis was up one and a half cents.

Basis levels this year are considerably stronger than last year, up an average of 55 cents.  Last year, futures prices for HRW were particularly strong, recording some of the highest prices seen in the last five years.

Strength in both the Chicago and Kansas City wheat cash markets, stem from decreasing grain stocks. According to the quarterly stocks report published March 30, wheat stored in all positions is down 16% from last year. Current stocks are at the lowest they have been in the last three years at around 1.2 billion bushels.

Kevin McNew is a cash grain and grain futures analyst with GeoGrain in Bozeman, Montana.

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