Concerns about supply and demand sent corn and soybean futures falling to fresh multi-year lows last week following bearish USDA reports. But as trading for 2024 progressed, cash markets showed signs of life in some areas, once again demonstrating the complexity of the fundamentals.
Of course, it's not uncommon for the difference between cash and futures to widen when the decline in futures markets discourages farmers from selling, thereby forcing buyers to bid higher to secure supplies. But even these usual mechanics have been upended this winter by the unpredictable mix of man and nature.
Two extremely cold temperatures – and real explosions in the Red Sea – disrupted shipping, whether the grain was transported by rail cars, barges or ocean-going ships. In some markets the impact increased compared to last year's levels, while others eased from December onwards.
Futures traders tend to look at the bigger picture, and many focus on the USDA's Jan. 12 reports that showed large inventories as of Dec. 1 and predicted even more corn and soybeans at the end of the marketing year on Aug. 31 will remain. But the reality in the cash market was completely different as end users improvised.
The rail helps with corn offerings
Entering winter, corn supplies in eight Midwestern states rose 12.5% from a year ago. As expected, the corn base in these areas was three cents weaker on average. That doesn't sound like anything particularly worth writing about. But bids improved by eight cents compared to December, seven cents more than average, and some of the winners and losers went against form.
As of Dec. 1, Nebraska corn inventories rose 40% year-over-year, rebounding from poor 2022 crop yields. So far, however, the January basis is two cents higher and bids are up four cents from December. Similar patterns played out in Minnesota, Kansas and Iowa. All of these states are shipping grain west, where demand is booming. While this demand and cold weather have driven up the cost of rail freight, foreign buyers don't have much choice at the moment.
Gulf supplies, which normally dominate the export business, are suffering from a triple problem.
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The quickest route from the Gulf to Asia is through the Panama Canal, a drought-stricken waterway that has slowed transportation and increased costs.
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Rerouting that traffic through the Suez Canal was the bypass of choice — until rockets from Yemeni rebels caused many shipowners to reroute ships around Africa and the Cape of Good Hope, a more expensive option.
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The freezing temperatures are affecting traffic on parts of the river system that are normally open to traffic in the winter. Ice blocked much of the port in St. Louis, and there were problems further south in Missouri. The lower Mississippi is also trying to recover from low water levels.
In fact, states with a weaker corn base this January compared to last year share the same story. Ohio and Indiana suffer from a poor cash market because much of their surplus is usually transported east by rail cars to feed livestock in the Southeast. Ongoing problems due to smaller herds and environmental concerns recently led to the closure of two plants, the latest in a series of closures triggered by problems during the pandemic. Corn supplies in Indiana could also suffer from problems at a major terminal there.
Crush compensates for export problems
Local supply also impacts the soybean base, although not to the same extent as corn. Disappointing returns hurt stocks nationwide on Dec. 1, with inventories declining in six of the eight Midwestern states. Deliveries rose in Minnesota and Nebraska, where the base was already weaker than a year ago, and have also fallen sharply since December.
However, bids remained unchanged in Indiana and fell in Ohio despite lower inventories as plants dealt with demand issues to the east and difficulties on the Ohio River, despite the Marine Safety Information Bulletin for low water on the lower Mississippi being lifted in early January.
While export controls on corn for the 2023 crop are ongoing, soybeans are suffering from falling Chinese demand. Unshipped sales to China are down 26% from a year ago, and there's more bad news about that country's prospects this week. A shrinking population that is simultaneously aging will eat less meat, reducing demand for imports as the Communist Party tries to figure out how to right its ailing economic ship.
Still, U.S. domestic consumption remains strong, benefiting major processing states like Illinois and Iowa. The National Oilseed Processors Association reported Tuesday that its members destroyed a record amount of soybeans in a month in January, despite a decline in margins.
Both corn and soybean bases tend to strengthen in the spring and summer, and both are expected to see gains this year as well. The corn base in January is so far in line with forecasts. Soybean bids average about 13 cents higher. Futures carries from March to May reflect the difference: 10.5 cents for corn but just 9.75 cents for soybeans.
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