For the past three weeks, grain buyers have been aggressively bidding cash corn trying to wrest what old crop farmers still have stored in bins or at elevators.
In a typical marketing year, the local corn supply gets tight. But 2011 is anything from typical.
Across central Iowa, elevators have been bidding well over Chicago Board of Trade futures - a range of 20 to 30 cents over basis, with ethanol plants even higher.
-Messenger photo by Karen Schwaller
July brings crop-spraying season as growers work against diseases and apply foliar fertilizers across the state. This plane was working a field farmed by Lyle Westergard, east of Milford.
Valero in Fort Dodge closed Tuesday cash bidding for local corn at $7.22 per bushel, 32 cents over basis.
POET in Gowrie closed July 25 bidding at $7.25, 41 cents over basis. On Tuesday is closed at $7.23, 32 cents over basis.
POET in Jewell, closed July 15 bidding at $7.26 per bushel, 25 cents over basis. On Tuesday, it closed at $7.20, 30 cents over basis.
Recent 'plus basis' bid histories
For most of this month, grain elevators throughout The Messenger's coverage area have been bidding corn well over the Chicago Board of Trade futures. A sampling of recent bid histories include:
NEW?Cooperative, Otho: On June 30 the bid closed at $6.52, over basis by 23 cents. On Tuesday the bid closed at $7.20, over basis by 20 cents.
NEW Cooperative, Humboldt: On June 30, bidding closed at $6.29, 23 cents over basis. On Tuesday, bidding closed at $7.10, over basis by 20 cents. (The highest was set on July 20, at $7.13, over basis by 25 cents.)
MaxYield Cooperative, Algona: On June 30, bidding closed at $6.29, 16 cents over basis. On Wednesday, bidding closed at $7.10, over basis by 20 cents.
Farmers Cooperative, Lake City: On July 22, bidding closed at $7.12, 22 cents over basis. On Tuesday, bidding closed at $7.10, over basis by 20 cents.
United Co-op, Webster City: On Wednesday, bidding closed at $7.12, over basis by 20 cents.
Gold Eagle Cooperative, Eagle Grove: On June 30, bidding closed at $6.29, 23 cents over basis. On Tuesday, bidding closed at $7.09, over basis by 19 cents. (The highest was set on July 21, at $7.04, over basis by 25 cents.)
NEW?Cooperative, Palmer: On June 30, bidding closed at $6.29, 23 cents over basis. On Wednesday, bidding closed at $7.11, over basis by 20 cents.
Ag Partners, Emmetsburg: On June 30, bidding closed at $6.29, 17 cents over basis. On Wednesday, bidding closed at $7.18, over basis by 26 cents.
First?Cooperative, Lauren: On June 30, bidding closed at $6.29, over basis by 16 cents. On Wednesday the bid closed at $7.19, over basis by 28 cents. (The elevator has been consistently at plus-27 since July 20.)
Although grain buyers will say it's not unheard of for local grain to be priced over CBOT futures, it is unusual for this suspended length of time.
Chad Hart, an Iowa State University economist, said part of the dynamics involved is that most of the corn still in storage "is spoken for."
He added that a lot of central Iowa corn was sold soon after it came out of the field and another large batch during the early months of 2011.
"Those who have hung on (to their corn) have seen prices do well for them.
"It's a seller's market, only there aren't too many sellers."
Commodity broker Ron Mortensen, of Advantage Agricultural Strategies, in Fort Dodge, said the shortage is real, not a matter of farmers hoarding grain looking for even better prices.
He said this will likely continue until mid- to late-September, since central Iowa corn will be a few weeks tardy getting out of the field.
The U.S. Department of Agriculture's June supply and demand report estimated the corn carry-over for the 2010 crop would be 900 million bushels.
"That's a tight supply," Mortensen said, adding that enduser groups will be grinding corn for a month before the 2011 crop rolls out.
He expects the possibility of volatility in the cash price once the new corn crop begins to flow.
"You could see it go from 20 to 30 cents over (basis) to 20 to 30 under (basis) in a matter of a few hours."
Hart and Mortensen said a similar scenario was played out in 2008 when soybeans were cash bid at upward to $1 over basis in late summer, until the new crop was harvested and prices fell back to more traditional levels.
While weather markets are typical this time of year, this summer's weather market is extremely volatile, said Karl Setzer, market analyst and grain solutions team leader for MaxYield Cooperative, in West Bend. The cash market has been higher than deferred bids by 15 to 20 cents in the current inverted market.
"Right now, the slightest change in the weather can make a huge impact in the market," said Setzer, who noted that July futures were so high that many elevators and grain processors were taking their bids off the September futures.
Several other factors are making grain market reactions even more pronounced, including the possible default by the U.S. government, financial instability in Europe and uncertainty about grain consumption levels.
"It would be unprecedented to have new-crop corn coming out as low as 300 million bushels, but the possibility exists," said Setzer, who urges farmers to avoid becoming complacent with the markets.
Consider the uncertain future of ethanol subsidies, Setzer said.
"All it takes is the stroke of a pen to eliminate the subsidies, and then all of a sudden you've got 5.1 billion bushels of extra corn, which could take the corn market from $7 to $3. While this situation isn't likely, you can't rule it out, either."
Weather also remains a wildcard. While July of 2011 will be recorded as one of the hottest in recent years, the crops are looking good, overall, in key states like Iowa and Illinois.
"In fact, the three "I" states of Iowa, Illinois and Indiana can produce enough corn in a good year to offset losses in other states," Setzer said. "The weather market is far from over, however.
"The futures market is always looking ahead and it's worried about what might happen two weeks from now."
Setzer advises clients to determine their break-even levels and make a game plan to market grain above those levels.
"With corn at $6.25 to $6.50 and soybeans over $13 out of the field, those are some very attractive prices.
"At least make some small sales and hope they are the worst ones you make."
Farm News staff writers Darcy Dougherty Maulsby and Clayton Rye contributed to this report.
Contact Larry Kershner at (515) 573-2141, Ext. 453 or at firstname.lastname@example.org.