CHICAGO (Reuters) — Cash corn basis bids approached historic highs in the U.S. Midwest on Wednesday as ethanol plants and other buyers scrambled to buy grain for immediate use while farmers held tight to what remains of last year’s harvest.
“The farmer is thumbing his nose at us, even with this rally. We have seen a little movement, but it’s not enough to satisfy everybody that needs to buy,” said Roy Huckabay with the Linn Group, a Chicago brokerage.
While many farmers may have emptied their bins of last year’s grain, those who still have some are demanding top prices. This has food processors, ethanol plants, livestock feeders, exporters and other users paying high prices for it.
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Corn processors in the Chicago area were bidding $1.65 per bushel over the price of Chicago Board of Trade September futures, or about $6.63, for corn delivered this month, compared to a typical late-August bid of roughly 10 to 15 cents over.
Posted bids in corn processing sites like Blair, Nebraska, and Decatur, Illinois, were at similar levels, lifting flat prices — the futures price plus the basis premium — above $6.60 per bushel. CBOT September corn futures settled at $4.98 a bushel on Wednesday, a three-week high.
Talk has circulated of even higher premiums being paid, $2 or more above September futures, which approaches or surpasses the record basis levels set earlier this summer.
At issue is a U.S. corn stockpile that is projected to fall to a 17-year low by the end of August, after a severe drought slashed last year’s production.
Meanwhile, the harvest of the late-planted 2013 crop will not reach the heart of the Corn Belt for five to six weeks. The resulting supply gap has created marketing opportunities for farmers with old-crop corn left in their bins.
“People are realizing there are not going to be any big volumes of corn until probably late September,” said Mike Hall, a central Illinois grain broker.
Early-harvested corn from the southern United States has already begun to move northward into the Midwest, but only in relatively small quantities.
Cash corn basis bids reached all-time highs in many locations in July of $1.80 or more over CBOT futures, before a rush of farmer sales late last month sent values crashing. But end-user inventories are again running low, giving the cash corn market a second wind.
Wednesday’s rally in CBOT September corn futures amid forecasts for stressful dry weather in the Midwest further emboldened producers to keep their bins shut.
“There is nothing like dry weather to increase farmer resolve on holding,” said Rich Feltes, vice president of research for R.J. O’Brien in Chicago.
“He’s got lots of storage, plenty of money, he’s done well holding at harvest for the last three or four years and doesn’t need the cash,” Feltes said.
Feltes and others said ethanol plants were among the most aggressive bidders for corn because they were making money, even with the big premiums for corn. About 40 percent of U.S. corn is used to make ethanol.
“They still have positive margins, so it’s in their interest to pay up and get corn in the door,” Feltes said.
