Seasonal Weakness Sets In

Corn and soybean futures collapsed as weather fears began to dissipate. Rains and cooler temperatures over the weekend gave traders all the ammunition they needed on Monday to sell off soybeans 15 cents a bushel and corn followed in sympathy with a 5-cent loss.

In the cash market, corn basis slumped in most parts of the country this week. Areas in the Eastern Cornbelt had the most noticeable drop as good weather has helped lift farmer sales of old-crop corn and put more supplies in the pipeline.

However, the Western Cornbelt and Northern Plains saw basis improvements of 2 to 4 cents in the last week as drought conditions are keeping farmers from being eager sellers at these prices. Also in the West, ethanol plants have also started to be more aggressive at bidding up basis from these low levels. 

With much of the ethanol production and new plant expansion occurring in the Western Cornbelt, basis levels may see considerable strength in this region as we move forward from old to new-crop conditions. Already, basis levels at key Western ethanol plants are starting to move higher.  Looking at plants in Iowa, Nebraska, South Dakota and Minnesota, weekly basis levels at these locals improved 3 cents a bushel on average, while plants in Illinois and the East were mostly lower to unchanged for the week.

Expect basis levels to start to come under further pressure as we move towards harvest. Barge rates have stabilized in the past week, but market rates will likely not falter significantly in the next few months with harvest around the corner. As such, the normal seasonal tendency is for corn and soybean basis to begin to slide as we move closer to fall and this year should see little change in that trend with ample old-crop supplies and high barge rates. However, corn basis could improve quickly after harvest especially in the Western Cornbelt where supply and demand imbalances may exist.

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