The cash market remains on the defensive as more grain flows into the supply line, said Karl Setzer, analyst with MaxYield Cooperative in West Bend Iowa.

"This is coming from the recent rally we have seen in the futures market, and is only being accelerated by the fact we are in a new calendar year," he said.

Farmers are actively selling supplies as futures market prices rally to multi-week highs. They are reportedly selling only small portions of their inventories, taking advantage of the higher prices, particularly with new sales not having an impact on taxes until next year.

However, with farmers optimistic prices may continue climb as long as South American weather issues linger, most are content to only sell limited amounts of their stored supplies.

End users such as processors aren't aggressively pushing for grain. A large amount of forward-contracted grain also needs to be delivered within the next few weeks that will add to the cash supply cushion, Setzer said.

The trend is expected to linger possibly through the January crop report from government forecasters. The U.S. Department of Agriculture is scheduled to release its annual crop production, quarterly grain stocks, monthly supply and demand, and winter wheat seedings reports on Jan. 12.

Meanwhile, the expiration of the U.S. ethanol blenders tax credit on Dec. 31 has processors scaling back operations as most operations are not profitable without the credit.

Processors and ethanol plants in the eastern Midwest report basis in a range from 14 cents under March futures to 15 cents over March futures, according to data from USDA.

Basis is the difference between cash and futures market prices.

Midday barge basis levels for January shipment of corn to the Louisiana Gulf ranged from 47 cents to 52 cents over March futures, down one cent from Friday, according to data from the USDA.

-By Andrew Johnson Jr., Dow Jones Newswires; 312-347-4604; andrew.johnsonjr@dowjones.com

(END) Dow Jones Newswires

January 03, 2012 13:57 ET (18:57 GMT)