One factor will ease the strain on corn supplies this summer: US corn exports are the lowest in decades. August and September weekly US corn exports used to run 30M to 45M bushels, but inspections haven’t even reached 30M bushels in a year. Cheap feed wheat along with the record US corn prices has made US corn uncompetitive into many world markets.
Early corn harvest in the Delta and Midsouth typically flows to the Gulf to be blended with dry, Northern old-crop corn for export. But the late summer Northern US corn will stay at home this year; there’ll be a big Southern corn crop coming out with nowhere to go. And this season more than half of the record Brazil corn crop will be second-crop “safrinha” corn, coming out in mid/later summer 2013 to reduce demands for US corn.
Extreme dislocations and overall tightness does not guarantee that domestic corn basis will set new highs in late summer. Farm selling will pick up eventually and some end users/buyers will have already covered their needs or just shut down until harvest. Sellers should liquidate all basis ownership of both corn and soybeans before July/August in the face of the huge inverses in basis and futures.
Country merchandisers can still fare well in times of extremely high summer basis. Shorting the basis and shipping your existing Delayed Price inventory is one strategy for your arsenal. The objective is to sell the extreme strength and buy the basis later when farm selling picks up and basis is (hopefully) cheaper. This differs from shorting the high basis and hoping you can find corn or soybeans somewhere to fill the sale. That could turn into an expensive mistake.
Soybeans aren’t immune. Comparable problems exist in soybeans. Production fell the most in 2012 in Illinois, Iowa, Kansas, Missouri, and Nebraska — also areas of high crush rates. Ending soybean stocks will be at rock-bottom levels in most states. End users of soymeal, especially in these Western areas, need to lock in their remaining physical meal needs for late summer now. Owning soymeal futures won’t feed the cattle, and more crush plants will be taking prolonged downtime or running at less than capacity until harvest. The overall US soybean crush pace this summer has to slow by a record amount compared to the winter rates and that means much tighter soymeal supplies. The Southeast can import soybeans or even soymeal this summer, but the economics and logistics almost certainly make that unworkable for the central and western Corn Belt regions.
The transition to new crop will be one for the record books as the US shifts from extreme shortages to potential record crops. But first we have to get through the summer without an early corn or soybean harvest. Atypical grain flows create opportunities as well as risk. Recall the mission of the original Starship Enterprise: “To explore strange new worlds; to boldly go where no man has gone before.” Perhaps Iowa qualifies as a strange new world … .