Basis could avoid last fall s disaster Smaller corn crop should free up space for soybeans By Bryce Knorr

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1 Basis could avoid last fall s disaster Smaller corn crop should free up space for soybeans By Bryce Knorr While the futures market has offered only occasional hope this summer, the picture in the cash trade is looking a little brighter for farmers ready to harvest good corn and soybean crops this fall. Smaller corn production despite record yield potential should provide more space for a huge soybean crop. Corn and soybean basis weakened to very poor levels during the harvest of 217, thanks to large supplies leftover from the record corn crop of 216. Though storage capacity could still be strained in areas with bigger corn crops, overall the percentage of the nation s bin space being used looks slightly smaller for 218. Storage could be an issue in parts of Nebraska and South Dakota, where corn production jumped significantly in USDA s Aug. 1 estimates. Growers in Illinois also look set for a better corn harvest, which could weigh on already weak basis levels there. One source of that weakness is easing a little. Barge freight rates soared to unusually high August levels due to closure of the key Mel Price lock in Alton, Illinois north of St. Louis for repairs. The cost of shipping corn to the Gulf down the Illinois River dropped 2 cents a bushel when the repairs were completed. Lower freight rates from harvest to December-January should offer potential for a post-harvest bump in basis though carry from December to July pays only 3.5 cents a month, with December-March around 4 cents a month. Farmers didn t get much of a bump in basis from the drop in freight rates. Overall corn basis at terminals and country locations strengthened a penny better on average. Poor margins at ethanol plants weighed on bids around much of the Corn Belt, except in areas with lower production, like drought-hit Kansas and Missouri. Soybean basis on average was steady to a little weaker last week. Bids from processors were mixed though margins remain attractive thanks to strong soybean meal exports getting a boost by the poor crop in Argentina. Basis along much of the river system also firmed on the big drop in freight rates. But weakness was seen in rail bids heading west, as uncertainty over Chinese exports remains a lingering cloud over the market. Rail costs for harvest slots are running at average levels for the last couple of years. Hopes for improved exports and prices rallied the wheat market last week but the cash market was mixed. Average country basis was steady but there were wide variations. Though hard red winter wheat bids have improved markedly over the past year, locations feeding the Texas Gulf eased. But rail lines headed west to the Pacific Northwest were stronger. White wheat also is strong due to the drought in Australia that could improve U.S. exports into Asia. Sorghum basis was weaker on average. Bids fell in Kansas, where production is higher, but were stronger into Oklahoma and Texas, where harvest looks smaller. Lack of exports to China could limit demand in the export market.

2 $.8 $.7 $.6 $.5 $.4 $.3 $.2 $.1 $- Barge offers to ship corn, Illinois to Gulf, per bu. $.7 $.69 $.68 $.67 $.7 $.73 $.73 $.59 $.53 $.53 $.53 $.5 $1.6 $1.4 $1.2 $1. $.8 $.6 $.4 $.2 Cost/Bu. To Ship Corn Illinois River To Gulf $. 9/2/14 11/2/14 1/2/15 3/2/15 5/2/15 7/2/15 9/2/15 11/2/15 1/2/16 3/2/16 5/2/16 7/2/16 9/2/16 11/2/16 1/2/17 3/2/17 5/2/17 7/2/17 9/2/17 11/2/17 1/2/18 3/2/18 5/2/18 7/2/18

3 $.6 Cost per bushel to ship grain from St. Louis to Gulf $.5 $.4 $.3 $.2 $.1 $.43 $.43 $.4 $.4 $.39 $.5 $.53 $.42 $.36 $.36 $- Source: St. Louis Merchants Exchange Cost per bushel to ship corn to Gulf on Sept. 1 $1.2 Twin Cities Mid-Miss St. Louis $1. $.8 $.6 $.4 $.2 $.

4 Rail Fuel Surcharges (cents/car/mile) Current Average $.4 $.35 $.3 $.25 $.2 $.15 $.1 $.5 $. -$.5 -$.1 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Source: USDA $3.5 October rate to ship corn from Minneapolis to Portland, per bushel $3. $2.5 $2.97 $2. $1.5 $1. $.5 $.84 $.85 $.82 $.86 $.87 $.91 $.92 $1.28 $1.2 $.97 $1.36 $1.35 $1.54 $1.39 $1.72 $1.97 $1.56 $1.78 $1.59 $1.54 $-

5 12, Baltic Dry Index 1, 8, 6, 4, 2, ,2. Barge Movements Through Lock & Dam 27 1, tons Corn Wheat Soybean 1, /26 4/26 7/26 1/26 1/26 4/26 7/26 1/26 1/26 4/26 7/26 1/26 1/26 4/26 7/26 1/26 1/26 4/26 7/26 1/26 1/26 4/26 7/26

6 Number of barges Grain Barges for Export in New Orleans Region Downbound Grain Barges Locks 27, 1, and 52 Grain Barges Unloaded in New Orleans 2 Source: U.S. Army Corps of Engineers and GIPSA Number of Barges Upbound Empty Barges Locks 27 Lock 1 Locks 52 Source: U.S. Army Corps of Engineers -

7 Corn Basis Illinois River Corn Basis 2 1 (1) (2) (3) (4) (5) (6) (7) 9/1 11/1 1/1 3/1 5/1 7/1 Average (1) (2) (3) (4) (5) (6) River System Corn Basis 9/7 1/7 11/7 12/7 1/7 2/7 3/7 4/7 5/7 6/7 7/7 8/7 Average

8 2 Eastern Corn Belt Corn Basis 1 (1) (2) (3) (4) 9/7 11/7 1/7 3/7 5/7 7/7 Average Omaha Corn Basis (2) (4) (6) 9/6 11/6 1/6 3/6 5/6 7/6 - (5) (1) (15) (2) (25) (3) Average

9 Western Corn Belt Corn Basis (1) (2) (3) (4) (5) (6) (7) 9/7 11/7 1/7 3/7 5/7 7/7 Average Gulf Corn Basis 9/6 11/6 1/6 3/6 5/6 7/6 Average SOURCE: USDA, CBOT.

10 Soybean Basis Illinois River Soybean Basis 4 2 (2) (4) (6) (8) 9/1 11/1 1/1 3/1 5/1 7/ Average Gulf Soybean Basis /6 11/6 1/6 3/6 5/6 7/ Average

11 Eastern Corn Belt Bean Basis 2 1 (1) (2) (3) (4) (5) (6) 9/7 11/7 1/7 3/7 5/7 7/7 Average River System Bean Basis 2 1 (1) (2) (3) (4) (5) (6) (7) 9/7 11/7 1/7 3/7 5/7 7/7 Average

12 Western Corn Belt Bean Basis (1) (2) (3) (4) (5) (6) (7) (8) (9) 9/7 11/7 1/7 3/7 5/7 7/7 Average North Central Iowa Soybean Basis (1) (2) (3) (4) (5) (6) (7) (8) (9) (1) 9/6 11/6 1/6 3/6 5/6 7/6 Average SOURCE: USDA, CBOT.

13 Wheat Basis Louisiana Gulf Soft Red Wheat Basis 6/7 8/7 1/7 12/7 2/7 4/7 Average Toledo Soft Red Winter Wheat Basis /7 8/7 1/7 12/7 2/7 4/7 Average

14 Hard Red Wheat Belt Basis 4 2 (2) (4) (6) (8) (1) 6/1 8/1 1/1 12/1 2/1 4/1 Average Minneapolis Spring Wheat Basis (1) (2) 6/7 8/7 1/7 12/7 2/7 4/7 Average

15 Salina Wheat Basis (2) (4) (6) (8) (1) (12) 6/1 8/1 1/1 12/1 2/1 4/1 Average Texas Gulf Hard Red Wheat Basis (2) (4) 6/7 8/7 1/7 12/7 2/7 4/7 Average

16 West Coast HRW Basis /7 8/7 1/7 12/7 2/7 4/7 Average PNW White Wheat Basis (2) 6/7 8/7 1/7 12/7 2/7 4/7 Average