Spike in Gulf Lifts Cash Basis
National corn and soybean basis showed strong gains this week on account of stronger Gulf bids
In the last week we observed a firm increase in national corn and soybeans basis in the cash market. On average across the nation we watched spot corn basis rise 2 cents, while beans added nearly 3 cents.
The river accounted for large basis increases this week with corn increasing on average 10 ½ cents and soybeans adding another 8 ¾ cents. The gulf bid moved sharply higher this week driven by demand for corn and soybeans delivered before any restrictions can be placed on barges. The continued dryness in the Midwest is still impacting the Mississippi river and if rain is not received within the next few weeks, there is a good chance we may see restrictions placed on the tow size and drafts of barges between St. Louis and Cairo, IL. Some anticipate restrictions as soon as December 10th.
Ethanol plants improved their basis for corn by 1 ¾ however, the river continues is rapidly approach in terms of basis competitiveness. When comparing the four year average basis for both river terminals and ethanol facilities, we observe that river terminals average basis crosses over average ethanol basis around November 9th. Due to the lackluster export demand this year and in spite of the early harvest we are observing average river basis becoming more competitive than ethanol a week later than normal. I would expect this to have an impact on the EIA ethanol production numbers in the weeks to come.
Basis also improved strongly throughout domestic soybean plants with average gains by 6 ¾ cents. Despite the bearish November USDA Supply and Demand report, which boosted soybean production and ending stocks higher than the market expected, we still see strong demand for soybeans both domestically and abroad. This week NOPA crush numbers were reported at 153.5 million bushels which beat even the highest analyst expectations and export sales bookings continue to run well ahead of the pace needed to meet the USDA’s expectations. With the decline in soybean prices, I expect crushing plants to continue reacting quickly and competitively to any basis increases along the river.
Soy Basis Heats Up on Export Driven Demand
Soybean basis up 3 points, corn basis stall due to weak export demand
Soybean basis was up 3 cents for the week as strong export business continues to lift interior basis levels. Robust business to China and others has helped fuel cash movement to Gulf ports. Year-to-date export shipments for soybeans are 57% higher than this time last year, and up 44% compared to the 5-year average pace of shipments at this time of year.
At the Gulf, soybean basis bids were up 4 cents for the week, but many river markets got an added lift as barge rates backed off from their recent rally. For the week, river terminals across the U.S. posted an average 10-cent gain in basis levels. There were, however, areas of weakness in the East Coast as harvest continues in the Carolinas and Mid-Atlantic. Also, Iowa had key soybean plants also backing off on basis which caused some weakness in Eastern Iowa.
For corn, the lack of export business has kept basis levels tied to domestic user needs. This week New Energy Corp ethanol in Northern Indiana reported that it would layoff 40 employees and idle production until economic conditions improve. With high corn prices and relatively weak ethanol, margin levels for ethanol plants continue to be slim, posting a 60% loss compared to this time last year.
Across the U.S., average corn basis levels posted a modest half-cent increase. However, ethanol plants backed off their basis by a half-cent over the past week. River markets and Gulf export bids were higher this week, suggesting export business may begin picking up. Indeed, a sale of 500,000 MT to Japan was announced this morning, a nice change from recent weeks of dismal corn business.
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Square Up For Easy, In-the-field Payments
Swipe credit cards on your smartphone
My son is in Cub Scouts and loves to take part in the annual popcorn sales fund raising program. He has always done well but I felt could have done better if we had a way to accept credit cards, so this year we down loaded the Square Credit Card App on my iPhone and improved his sales by 20% which is roughly the amount of revenue we brought in by credit cards.
Square is an amazing service that works with your mobile phone, you simply down load the free app onto your phone, signup, and plug in the free card reader. There is a 2.75% fee when you do a transaction, so for every $100 you bring in there is a $2.75 fee. This is very low fee compared to most traditional credit card processing companies. For companies that have large transactions there is a fixed fee program which is $275/month for unlimited usage.
Here is how I envision an ag Business using the Square technology: Imagine your employee going out to the field to deliver some lubricants at harvest time, the farmer hands the employee the credit card, who swipes it through the reader plugged into his phone, an amount is entered along with any optional details, the farmer signs the phone screen for confirmation and a receipt of the transaction is forwarded via email or text. The funds are then deposited from Square to the ag businesses local bank account.
If you let your imagination go you can come up with many ideas of how this type of technology may be used by ag businesses in the future. Someday your employees may walk around with a phone capable of taking payments while you monitor the sales in real time via your office computer. You may even be able to see that a salesperson has just received a payment at the end of a field via Google Maps.
To learn more visit www.squareup.com
Barge Rates Decline, Spurring Basis at River Terminals
Sharp decline in barge rates had a pronounced impact on soybean basis, while corn benefited only slightly
Finally, after two weeks of barge rate increases, we observed a sharp decline across the river system. The St. Louis rate declined 19% last week giving soybean basis along the river space to improve 11 ¼ cents between Oct. 25th and Oct. 31st. Movement of soybeans through Mississippi river Lock 27 tapered off sharply, declining from a whopping 414 thousand tons (64% above the three year average) to only 147 thousand tons by Oct. 27th. However, despite the minor lull in Soybean movement down the river, the Gulf bid should continue pulling soybeans at an above average pace. In the last week the soybean bid out of the Gulf increased 7 cents.
Soybean Basis throughout the Eastern US continued to see harvest pressure. For the states of NC, KY, VA, MD, DE and SC only about 47% of estimated soybean production has been harvested. Because the eastern states are in the peak of soybean harvest, we expect to see downward basis pressure in the weeks to come.
Harvest for corn is 91% complete, allowing basis to creep about a penny higher this week on average across the US. Despite cheaper transportation to the gulf, declining barge rates had little impact on corn basis at river terminals, which improved a cent over last week. Corn basis at the river is not responding to cheaper barge rates simply because export demand is very weak. Total amount of corn which has passed through Mississippi River Lock 27 is a little over half the volume we observed in 2011 and 47% of the three year average. Unfortunately, the export picture doesn’t look to improve as sales continue to come in below the pace necessary to meet the USDA’s forecast. We will continue to follow export sales for any indications of improving demand.
Barge Rate Spike Puts Pressure on River Markets
Strong demand for soybean shipping helps boost barge rates 10-20 cents over the past week. Basis softens along the river terminals as a result.
Increases of 10 to 20 cents a bushel in barge rates the past week put significant pressure on river terminal basis. Thanks to strong demand for soybean barging, rates have begun to move higher which pressured river basis levels, with losses of 10 to 20 cents a bushel fairly common along the river system this week.
For the week ending October 25, corn and soybean basis levels were up 1 cent a bushel on average across the country.
In the corn market, Western Cornbelt ethanol plants continue to push hard on basis to meet their needs where +40 basis levels are fairly common by key buyers. In comparison, this time of year those same plants are generally paying -20 on basis. However, other ethanol plants around the country were more moderated, leading to al ethanol plants being up only 0.8 cents for the week. At the Gulf, basis levels were up 2 cents for the week.
For the soybean market, basis levels were also substantially lower along the river with a loss of 10-cents per bushel reported by river terminals this past week even though the Gulf was up 4 cents. Weakness continues through the Carolinas and Mid-Atlantic as double-crop beans continue be harvested in full force. However, soybean crushing plants were up 3.5 cents a bushel this week and gains in the Western Cornbelt were fairly typical as harvest finishes up.
After Harvest Lows Soybean Basis Rebound Remains Lackluster
Soybean basis improved in the northwest following the end of harvest, but the eastern states continue to experience depressed basis due to double crop bean harvest.
The basis lows were printed in the last week of September for both corn and soybeans on average throughout the nation. In just the last week, the national average basis for soybeans improved nearly a cent while corn basis continued climbing, up another 1 1/3 cents on the week. Despite the steady basis improvements observed since the harvest low, soybeans has not experienced the violent snapback in basis that it enjoyed during the same period last year. In 2011 the national soybean basis average improved 14 cents in the two weeks following the harvest low. This year, soybeans have improved a lackluster 3 ½ cents during the same period.
Across the United States
The slow basis improvement seen in soybeans this year could be caused by a number of abnormal events. First, going into harvest we had exceptional backwardation in the futures market. At one point there was almost a two dollar discount for soybeans delivered in July 2013 compared to soybeans delivered this November 2012. This sort of futures market structure gives farmers incentive to sell beans directly off the combine, and probably played a role in amplifying bean sales during this year’s harvest. However, since the height of the backwardation the cash market has adjusted and now provides, on average, a 7 cent carry from spot to Nov, a 5 1/3 cent carry from Nov to Dec and a 2 cent carry from Dec to Jan. The current cash structure should help support further spot basis improvement. Secondly, there is a chance that the soybean basis recovery has been muted as a result of improving yield expectations during this year’s harvest. Recently, we have seen multiple private analysts increase their soybean yield forecasts, and on October 11th we saw confirmation when the USDA raised their official soybean yield forecast from 35.3 to 37.8 bushels per acre.
Soybean basis seemed mixed across the different facility types last week with soybean plants improving their basis by 1 ½ cents, while basis along the river dropped 2 1/8th cents. The gulf remained unchanged.
The increase we observed in corn basis was supported by a one cent increase out of both ethanol plants and the gulf. Despite the slight improvement in corn basis out of the gulf, river terminals remained unchanged as a result of slightly stronger barge rates. Since harvest lows corn has increased 3 ¾ cents, on par with the rate of improvement we observed last year during the same time period.
We see spot soybean basis improving this week with the peak of harvest well behind us. North Dakota, South Dakota and Minnesota have been over 90% complete for more than a week giving reason for merchandisers to bump up the bid to start attracting more grain. The Dakotas were about 10% ahead of last year’s pace for the week of October 14th. We see weaker basis in the eastern part of the US, caused by double crop harvest pressure. Kentucky's harvested beans went from 34% to 42% last week, Missouri from 20% to 36%, and Tennessee from 24% to 33%. Harvest in these eastern states is moving along at an average pace and should continue to see basis pressure through next week.
Harvest Low Short-Lived in Cash Grain Market
Basis on the rise as harvest wraps up in key producing areas
If you blinked, you likely missed it this year. The usual drop in basis levels seen around harvest has been mostly non-existent this year, except for a few parts of the country with better supply prospects. Since September 1, corn basis has fallen only 5 cents while beans posted a more typical 20-cent loss. This year’s exceptionally tight stocks and production prospects continue to prop up basis levels for much of the country.
For the week ending October 11, corn and soybean basis levels were up 2 cents a bushel on average across the country. Continued declines in barge rates coupled with harvest wrapping up in key grain producing areas is help giving a lift to basis through much of the Midwest.
In the corn market, river terminals were driven higher thanks to a 5 to 10-cent a bushel drop in barge rates in the past week. However, the prospect of strong export demand stimulus this year seems unlikely as export sales continue to be lackluster. For the week, Gulf export basis bids were unchanged. Domestically, U.S. ethanol producers were up 2 cents on basis which was on par for the U.S average gains. Areas of weakness were noted in the Northern Plains and Upper Midwest where production has been more favorable.
For the soybean market, basis levels were substantially higher along the river this week thanks to sliding barge costs, but Gulf basis was 1 cent lower. Weakness was hitting the Carolinas and Mid-Atlantic as double-crop beans start to be harvested in full force.
Basis levels should continue to firm as we finish up the short harvest this year. But, the prospect of sharp rallies in basis seems dim. Already lofty basis levels, especially in corn, combined with slow export business should keep basis levels tied to domestic users like ethanol and feeders, where profitability is already being squeezed.
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Grain Barge Rates Sink, Lends Support to Grain Basis
River terminals to become more competitive
An early grain harvest this year has meant an earlier peak in barge rates. Over the past few days barge rates have begun to fall suggesting that the trend may be set for barge rates to continue the post-harvest harvest seasonal slide. Although average corn and soybean basis this week was up only modestly, areas around the River system posted solid gains thanks to 5 to 10 cent a bushel declines in barge rates.
For corn, basis levels were mostly unchanged through the heart of the Cornbelt, but Eastern areas saw more weakness as harvest hits full swing. Areas along the River system saw higher basis with average corn basis at river terminals jumping 4 cents for the week even though the Gulf basis was off 1 cent. At ethanol plants, basis levels were up 1 cent on average across the country with large gains noted at key plants in the Western Cornbelt.
In the soybean market, basis levels on average were modestly higher but showed more weakness in the Eastern Cornbelt with losses of 5 to 10 cents fairly common. However, strength out of the Gulf and lower barge rates helped lift interior river terminal basis by 5 cents for the week while soy crushing facilities were mostly unchanged for the week.
With harvest now surpassing the half way point, it will be interesting to see if basis levels will start to climb higher. The short-crop this year has definitely limited the usual pressure on basis and kept spot bids fairly strong through the harvest season. Adding to the upside potential for basis will be the likely erosion in barge rates over the next few months. Forward barge rates are 15 to 20 cents lower than current barge rates -- which means river terminals should start to be more competitive in the market place in coming weeks.
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Has Your CEO Seen the ROI of the VOIP?
Voice over internet phone systems can work for your ag business
Ten years ago I switch our home phone service that Qwest provided to a VOIP service, which stands for “Voice Over Internet Protocol.” The VOIP service works the same as the old-fashion phone except it used high speed internet to carry the conversations vs. the traditional phone line. Five years ago I was so pleased with how the home phone VOIP service was working that I subscribed to the service in our offices. This new technology costs a fraction of what traditional phone services cost and comes with many amazing options to help you’re ag business communicate with clients and employees.
One of my favorite features are Answering ruleswhich route calls based on the time called, caller ID or the number called. Imagine having a system that routed calls based on the caller ID, let’s say your company has a grain broker that you communicate with often and when he calls, the system automatically routes his call to your desk and cellphone at the same time, this potentially saves your broker, the secretary and yourself time and money. How about that important farm client that you want routed directly to you; they would really be impressed?
Another feature that is very useful is the “find-me” tool. Let’s say you have an office phone, cell phone, shop phone & home phone and you don’t want to make your clients call all your phones. Your client simply calls one phone and based on your phone settings will call each phone separately in the order you wish.
One last feature I will mention is the ability to setup custom extensions and recorded messages. Imagine setting up an extension called “daily grain bids”, when the client goes to that extension they are played a recording of the closing cash bids and then given a choice to press the #1 to speak to a grain merchandiser, once again another happy client.
I subscribe to Ringcentral.com and pay around $40 monthly, this includes unlimited long distance, an 800 number and all the wonderful features of the system. There are many other service providers to choose from such as 8x8.com, nextiva.com and getjive.com.