Are Surprisingly Strong Cash Grain Bids Exposing Reality of U.S. Corn Supplies?

Commodity markets continue to see wild swings to finish out the month of June, but a story that’s catching the eye of many farmers is basis. Strong cash grain bids are sparking questions about not only how tight corn supplies actually sit today, but severity of the issues getting the grain to feed users located in areas of the country that need it.

Joe Vaclavik of Standard Grain says the cash market is creating opportunities for farmers still holding on to old crop grain.

“It's not everywhere, but there's a lot of areas with positive corn basis, in particular, and I think we'll find out a little bit more on June 30 about that situation,” says Vaclavik. “What are the grain stocks? Where are they located? Why is it so tough for, say, an ethanol plant to procure corn, even when cash is $8 or better?”

Have Grain to Sell? Check Your Local Basis Bids Now

Could USDA's Report This Week Reveal Answers?

Thursday, June 30, is when USDA will release its updated look at planted acres, as well as a more current snapshot of grain stocks in the U.S. and around the world. He says with current cash basis levels, it will be a major focus of Thursday’s reports.

“It's really a phenomenal situation,” says Vaclavik. “And it is an underlying positive in regard to the markets. Now, that doesn't mean that the board has to rally from here, but I'd say it's a supportive factor.”

Mike North of ever.ag works with livestock producers across the country. He says for feed users in the western half of the country, specifically California and the Southwest, sourcing grain is becoming more difficult. He says there are feed users even paying as much as $3 over the board just to get the grain they need.

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“Basis absolutely suggests that corn supply is tight; there is no way around that fact when basis moves to the extremes that it is,” says North. “Even with high prices on the board, it is suggestive that it is hard to find, source and move corn from point A to point B. And as a consequence, you do start to question what the yield was last year, the stocks numbers that have been reported previously, or is it that we have enough corn just kind of sitting there that producers are unwilling to sell because they're comfortable? It's hard to fully answer that question.”

Issues Sourcing Feed Farther West 

The other issue for producers in drought-stricken areas of the West is the fact feed is becoming more scarce, according to North.

“Water is already scarce,” he says. “There are allocations in California for usage, it's a difficult situation. And it's only getting worse, because as these allocations for water continue to shrink so does the capacity to grow crops. We're taking a feed pile that has already been running light and making it lighter.”

North says in order to keep these operations running, and to keep the animals fed, feed users are paying more.

“When we talk about the road ahead, what's going on in the Midwest will have big ripple effects as you work further out into the West and the South,” says North. “That becomes further complicated by railcar shortages and labor shortages and all of the other peripheral things that wrap themselves around just pure supply discussions.”

The Price Risk in Both Directions 

Vaclavik says even with the updated look at acreage and stocks later this week, he thinks there’s a tremendous amount of risk in both directions for grain prices.

“Weather forecasts can turn on a dime and bring the markets along with them” he says. “At the same time, I think you've got a Federal Reserve and central banks that are essentially trying to induce a recession. They won't say that, but that's what they're trying to do. They need to reduce economic activity in order to reduce inflation. They don't even care if unemployment rises by 1% or 2%, I don't think at this point in time, so that you've got so many risks.”

From recession, to the reality of reduced grain flows due to the war in Ukraine, Vaclavik reminds producers the markets are wading through a combination of unknowns.

“I've never seen anything like this before,” says Vaclavik. “Just try to have an idea of your risk profile, know where you stand. If things work, lock them up. Because you know, these markets can move dollars, dollars per bushel and grains in the course of a week. It's possible and it's in both directions.”