”We can’t buy corn for anything these days,” Mark said to his scale operator, Larry. “If it’s tough in June, what will it be like by August? Is there any corn left out there?”
Merchandisers and managers across large parts of the country are struggling to buy old-crop corn and soybeans, despite record-high basis values. Accumulating a train-load quantity seems a distant memory for many managers, and a few soybean crush plants are already shutting down until harvest due to tight soybean supplies and poor crush margins. But ethanol (futures) crush margins are at 17-month highs, and high enough to offset a corn basis of +70¢ or even higher. Buyers are ratcheting up corn basis to attract corn — but it’s still tough going. What lies ahead?
The March 1 Quarterly Grain Stocks report showed on-farm corn stocks of 2.7 billion (B) bushels, down from 3.2B last year. On-farm soybean stocks were 457 million (M) bushels vs. 555M last year. There are stocks to be bought but farmers seem to be holding onto their remaining corn and soybeans as a safety net until the 2013 crops are planted.
Sooner or later farmer selling will increase, but even then there will be significant regional dislocations this summer. USDA said on May 10 that ending corn stocks will be 759M bushels, and pegged soybean stocks at 125M bushels. Both are barely at pipeline minimums, and this year there will be little new-crop corn available before Sept. 1 to bridge the inventory gap. Near record-late corn planting in 2013 means it’s critical for traders to not only look at summer stocks, but to look at the distribution. Only two major states had more total corn on hand March 1 than a year ago (Minnesota and North Dakota), while key parts of the western Corn Belt barely hold more corn than back in 1996!
The next challenge is to project what the ending Sept. 1 corn stocks might be in various states. Ethanol plants now consume over 4.5B bushels of corn; that category was so small it wasn’t even a statistic back in 1996.
Table 1 also shows the approximate volume of corn needed per crop year if a state’s ethanol plants are all running at capacity, and assuming they produce 2.85 gallons/bushel of corn. The corn needed for March 1 through August is about 50% of the amount shown, or approximately 674M bushels for Iowa, or 230M bushels for Illinois. Iowa, South Dakota and Nebraska stand out as three problem areas for corn supplies: 60% or more of their March 1 stocks will be needed just for ethanol before Sept. 1, 2013, with Kansas not far behind. And that doesn’t account for the corn needed for feed or other processing, as well as the pipeline inventory processing plants and feed mills/feedlots each need. In Nebraska, for example, ethanol plants would need to hold around 15M bushels of corn to cover seven days’ grind; in Iowa that jumps to 26M bushels.
Iowa, Nebraska, Illinois, South Dakota and Wisconsin could see their lowest Sept. 1 corn stocks since 1996 — a year when total usage was below 9B bushels!
But Minnesota and North Dakota, along with several other states outside the Corn Belt are set to hold a larger than usual proportion of the carryover corn this year. Other states that will fare better include Pennsylvania, Maryland and Virginia, along with the Midsouth/Delta — areas where 2012 production was not as hard hit, few ethanol plants exist, or where corn imports are already underway to boost inventories.
The uneven distribution of corn stocks is turning summer merchandising programs topsy-turvy. Ten states typically hold 82% to 90% of the Sept. 1 carryover corn stocks: Iowa, Illinois, Indiana, Minnestoa, Missouri, Nebraska, Ohio, South Dakota, Texas and Wisconsin. This summer they may hold as little as 60% and still have barely enough to get by. Corn will need to move “backward” into the western Corn Belt this summer to ensure minimal stocks and to help cover usage. The highest basis values on corn, with a few exceptions such as the Texas Panhandle or California, are already in Iowa and Nebraska because of the ethanol plants!