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Cash Market Moves             09/28 11:19

   Corn Basis Continues to Strengthen Into New-Crop Year 

   The corn basis recovered from COVID-19 related weakness during the old-crop 
year, staging a strong recovery that continues in this new-crop year. 

Mary Kennedy
DTN Basis Analyst

   By the end of the 2019-20 crop year, the corn basis recovered from the fall 
it took beginning in March when COVID-19 caused U.S. ethanol plants to slow or 
shudder as the crude oil market fell into a dark hole. With many states closing 
businesses and asking residents to stay home except for essential needs, demand 
for energy related products dropped sharply. That trickled down to ethanol 
plants, and in turn, had a negative effect on corn demand. In addition, packing 
plants were closed or production was slowed due to employees becoming infected 
with COVID-19, causing corn feed demand to fade.

   The DTN National Corn Index for the first week of March 2020 was at $3.55 
and the national average basis for corn was 13 cents under the May contract. By 
the first week of April, DTN National Corn Index was at $3.04 and the national 
average basis was at 27 cents under the May contract. Then in June, the cash 
price bounced around both sides of $3. At end of July, DTN National Corn Index 
was at $2.94 and the national average basis was at 22 cents under September 
contract. On the last day of the 2019-20 crop year, the DTN National Corn Index 
had recovered and was at $3.26, with a national average basis of 20 cents under 
the September contract.

   Besides the trickle-down effect of COVID-19 causing the demise of the cash 
corn price, the lack of export business added to that fall. The USDA reported 
that 2019-20 corn exports were down 15% from a year ago and in the Sept. 3 
weekly Export Sales and Shipment report, corn export commitments for the 
2019-20 marketing year for the week ended Aug. 27 were down 11% versus the 
prior year. However, for the first three days of the new-crop year 2020-21, 
corn export commitments were up 162% versus one year ago. To date, U.S. corn 
has 916 million bushels of export sale commitments on the books, a strong start 
with 11 months still to go in 2020-21.

   China has been ramping up U.S. corn purchases for the new-crop year recently 
as their domestic supplies have become tight. Reports of possible crop damage 
in northeast China surfaced mid-September, adding fuel to the U.S. cash price. 
DTN Lead Analyst Todd Hultman, on Aug. 24, wrote "What is Happening in China," 
giving some of the reasons for their buying habits at that time, which has 
continued in to the new-crop year: 
https://www.dtnpf.com/agriculture/web/ag/news/article/2020/08/21/happening-china

   With those large purchases comes strong basis, and that is what we have been 
seeing in the Pacific Northwest market. At the beginning of September, the 
track PNW shuttle basis was at $1.08 over the December contract for October and 
$1.12 over the December contract for November. By the middle of the month, the 
November basis was at $1.15 over the December contract and as of Friday, Sept. 
25, that basis was at $1.18 over the December contract. Given this strong 
basis, farmers in northern Midwest are seeing stronger than normal basis levels 
for this time of year.

   Matthew Krueger, who farms in East Grand Forks, Minnesota, told me last week 
that, "Our corn basis was around 40 cents under the December contract, and 
typically this time of year we've been seeing the corn basis more like 70 cents 
to 80 cents under the December contract. There are great opportunities for 
growers this year with the rally and strong basis to squeeze some profit out of 
the market." That strength in basis levels bid to farmers is to entice them to 
sell corn to shuttle loaders who feed the PNW market.

   The story is similar in the central U.S. where corn basis has spiked in 
areas where ethanol plants need spot corn to grind and end users need to cover 
commitments.

   Matt Wiegand, FuturesOne commodity broker in Lincoln, Nebraska, said, "Corn 
basis hasn't really started to see much harvest pressure yet, with more of a 
focus on early soybeans so far, which is where we are seeing some of the early 
weakness, with some areas getting behind on train loading to start in the good 
yielding areas. Prior to that, the better ethanol margins helped to prop corn 
up. I'd say basis in my area is about 5 cents to 10 cents better for corn at 
this time."

   In the Eastern Corn Belt, there are reports that basis levels in some spots 
are 20 cents to 30 cents stronger than normal, and this as harvest has started 
there. On top of that, end users are offering a break in drying charges, free 
delayed price contracts and some have been playing "name your price" to try and 
entice cash corn to move.

   The cash corn price in the U.S remains strong for this time of year as 
recent exports sales and demand from end users, along with slow farmer selling, 
is keeping the price solid. We may see harvest pressure on the futures, but I 
think that with all the recent export business and domestic needs, the basis is 
going to likely stay above the DTN five-year average where it ended the old 
crop year and where it still is.

   Mary Kennedy can be reached at mary.kennedy@dtn.com

   Follow her on Twitter @MaryCKenn




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