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.
Volatility Creeps into Cash Grain as Market Bridges Old & New Supplies
Cash basis continued to trend lower.
Grain harvest continued its quick progression this week, but some areas of the country saw unusually strong upside basis moves. Overall, however, the US average corn basis was mostly unchanged while soybeans were off 1 cent over the past week.
Impressive gains at some key end users were noted for corn this week in NE, IA & IL, but overall ethanol plants as a group were off -0.7 cents for the week. River terminals were mostly higher propelled by strength out of the Gulf and a modest decline in barge rates on the Southern Mississippi River region, although more northern areas of the Mississippi and Ohio saw stronger barge rates and weakening basis.
In the bean market, basis levels continued to fall overall but pockets of strength and weakness were apparent this week. In the Upper Midwest and Eastern Cornbelt, basis levels saw losses of 5 or more cents but areas along the river were mostly unchanged thanks to a 6 cent gain out of the Gulf. Soybean processing plants, however, were weaker with a 3 cent loss on average for the week.
Reports from the cash market indicate farmer selling has been limited by the recent drop in futures. As a result, producer deliveries have mostly been filling existing contracts and not much spot-only delivery. While this has lead to basis strength in some areas around end users, some feedlots in the Plains are reporting they have all their feed needs priced for the next six months which may be signs of demand destruction. Further, export business has been anemic of late, with the latest weekly sales figures showing a dismal 400 MT of corn sold, when normally we are selling 400,000 to 1 million MT a week.
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Industry Invests in its Future
Auburn feed mill stands as proof
During my two-hour drive from Birmingham and Auburn to write this issue's cover story, "Auburn's New Feed Mill Comes to Roost," I tried to mentally prepare my questions for Dr. Don Conner, the head of the university's poultry science department, and Mitchell Pate, director of the poultry research unit, but my mind began to wander. I began to think about how excited the student's must be to kick off the Fall 2012 semester in an immaculate, brand-new, state-of-the-art feed mill. The purchase of school supplies was enough to get me motivated for the new school year, but imagine the message this new facility sends to these students: "The poultry industry needs you and this faciltiy represents its investment in you."
In this month's Manager's Notebook (pg. 36), "How to Recruit Tomorrow's Managers," Drs. Jay Akridge and John Foltz cite that by 2015 there will be 54,400 jobs annually for individuals in the agricultural sciences. (USDA report)
In a time when the majority of graduates in many disciplines are simply hoping to find anything in their chosen field, the kids in Auburn's gradate and undergraduate program know they are in high demand in the Southeast with the erection of the Poultry & Animal Nutrition Center. To date, the department has raised 40% of the cost of the mill with industry and stakeholder donations; it hopes to raise the addition 60% over the next four years. Within the modular feed mill, the industry's suppliers alone donated $750,000-worth of equipment. Impressive numbers by anyone's estimation.
According to Dr. Conner, the demand for skilled employees in the Southeast is high — and rising. Behind Georgia and Arkansas, Alabama ranks third in poultry production; Auburn University is located in the heart of the "Broiler Belt." The thing is, the demand Auburn seeks to meet it's just about "growing the industry's future CEOs and VPs," as it was explained to me, "at the end of the day, it's all about education," the university hope to utilize the mill for continuing education and training programs for individuals already working in the field.
In addition, the university's world-class research laboratories can provide endless opportunities for proprietary poultry-related research to aid in the stregthening the yields of poultry producers at all levels. Dr. Conner and his department urge anyone interested in feed mill stop in for a tour, stressing this isn't Auburn's feed mill, it belongs to the collective industry as they plan for a profitable future.
Cash Grain Update—Sept. 14
Storage for both corn and soybeans looks unfavorable
Spot corn and soybean basis has made slight gains so far this month. Spot corn moved up half a cent while spot soybeans increased a penny. The Gulf has done little to support both markets as corn basis gained one cent and soybean basis actually lost four cents. Barge rates also hampered the cash market as prices along the Illinois and Ohio Rivers have gone up couple cents in the last nine days. Rates on the Ohio River are currently sitting four cents above their five year average.
Taking a look at the carry in the cash market, storage for both corn and soybeans looks unfavorable. The average cash forward contract carry in the corn and soybean markets is 9 cents per bushel for five months of storage.
This compares to a nearly 22 cent carry in the corn market recorded at this time during the last two
years. The soybean cash forward carry is looking similar to the situation in 2010 when the carry was 10 cents storing until July. Last year the soybean market provided a 25 cent carry with five months of storage.
Feed & Grain Expands Newsletter
Introducing Monday edition to provide a
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