DJ US Cash Grain Outlook: USDA Report Suggests Stronger Basis
CENTRAL CITY, Neb. (Dow Jones)--Forecasts of a smaller-than-expected fall
corn/soybean harvest included in the USDA's October crop report may suggest
that cash basis will continue to strengthen across the U.S. interior this fall
and winter.
The agency early Thursday released revised outlooks of U.S. crop production
pointing to a domestic corn crop of just 10.9 billion bushels, representing a
reduction of 2% from estimates made in September.
"This year, however, we're learning a lot about what that heat spell in
mid-summer did to the corn crop," said Chip Flory of Pro Farmer. "Test weights
are down around the country."
USDA now places corn yields at an average of 153.5 bushels an acre, down 1.2
bushels from September, but still up 5.6 bushels from 2005 levels.
Ag Management Services market consultant Rich Balvanz says reduced corn
yields, "just makes the farmer all that much more bullish, and confirms in his
mind that he made a good decision not selling (corn) off the combine."
USDA now predicts season-average cash corn prices of $2.40-$2.80 a bushel, up
25 cents from levels estimated in September.
"The issue near-term on the cash market is that basis is going to have to
tighten up even more, to pry this stuff loose," said Balvanz. "It's going to be
a wild winter."
Interior corn basis appreciated by about 2 cents a bushel last week, and held
steady entering Thursday's trading session.
Although USDA did in fact forecast a record-large domestic soybean crop
(totaling 3.189 billion bushels) Thursday, the estimate was actually somewhat
smaller than what was predicted by private industry analysts prior to the
report.
"I don't see anyway that they (soybean prices) can't be dragged up by cornand
wheat," said Balvanz, who indicates that the report also points toward stronger
soybean basis.
"We're just too close to the loan rate in the cash market at this
point...traditionally we've had to get 25-30 cents either above, or below loan,
to convince the farmer to take an LDP on the low end, or move beans on the high
end," said Balvanz.
Interior soybean basis had accrued average gains of 1/2 cent nationwide
Thursday morning, although spot wheat basis had declined by an average of 3-9
cents.
"Country movement was heavy (Wed)," said Country Hedging wheat analyst Loren
Jacobs.
USDA revised its estimate of total U.S. wheat production upward by 12 million
bushels Thursday, to 1.812 billion bushels, in all. The agency reduced its
carryover estimates for wheat, corn and soybeans, and also increased its
forecast of season-average cash prices by 25 cents for milo, 15 cents for wheat
and 10 cents for barley/oats.
Grain futures were largely lower overnight, generally suffering cash contract
declines of 2-4 cents. Spot CBOT SRW wheat and rough rice served as the lone
exceptions to that bearish trend, rising by 3 cents and 1 cent, respectively.
CROP WEATHER
Rain quickly moved out of most of the Midwest Thursday, ushering in a period
of dry weather forecast to last through the weekend.
"It looks like we will see a very quick resumption of harvesting activities,"
said Freese-Notis Weather. "It is going to be a tougher go of it next week
though, as conditions start to turn quite wet again."
Considerable rain is expected to develop in the southern Corn Belt by late
Sunday, and spread across most of the Midwest by Tuesday morning.
"The Sunday through Tuesday time frame is still looking exceptionally wet for
the Delta," added the service.
