Grain Journal - January/February 2009 - (Page 77) Corn/Soybean Merchandising RISKS IN OVERSTAYING BASIS OWNERSHIP USDA released its final production MERCHANDISING estimates and an upJohn Beurskens dated supply/demand report for the 2008 crop on Jan 12. Looking at corn, USDA surprised the trade with a bearish final production estimate of 12.101 billion bushels (bbu) vs. the average trade guess of 11.982. Dec. 1, stocks-inall-positions was also larger than expected at 10.085 bbu vs. average guess of 9.845. Finally, Sept. 1, 2009, carryover was 1.790 CORN/SOYBEAN bbu with the average guess of 1.624. All of these estimates were above the average guesses, and conventional wisdom would have suggested the merchandising opportunity in corn was not healthy. Stay the course. In last issues’ column, I suggested shorting D/P soybean stocks to finance the accumulation of hedged corn stocks. While the USDA reports would have appeared to make this strategy appear to be suspect, the corn basis has appreciated dramatically to the end of January. One of the most bullish basis factors has been that corn spreads have paid 90%plus of full carry. Thus, elevators holding corn stocks are realizing about 4 cents per month in storage payments from the spread. Consequently, elevators have been reluctant to offer ownership. Farmer selling has been abnormally light from the beginning of the new year. Elevators that are liquidating ownership on basis strength are not replacing it leaving fewer stocks available to the user pipeline. At some point, farmer selling will kick in and basis should experience a setback. While this is an opportunity for a couple of months, if the new crop starts off well, the late summer basis could come under pressure. Thus, unless one has a backstop to carry hedged ownership, there is some risk in overstaying basis ownership. John Beurskens is a merchandising consultant for Advance Trading Inc., Bloomington, IL; 309-663-9021. Response No. 771 J/F GJ 77 http://www.intersystems.com http://www.intersystems.com
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