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"However, significant storage capacity issues could develop in
areas that experience a large increase in corn production and
limited expansion in storage capacity," said Darrel Good. "The
report of planting intentions on March 30 may help identify
those areas." Good's comments came as he reviewed old-crop and
new-crop corn and soybean basis levels that remain generally
weak in many areas. The weak old-crop basis reflects higher
futures prices and ample crop supplies, while the weak new-crop
basis may reflect concerns about storage capacity for the coming
harvest.
The average spot cash bid for corn in the south-central area
of Illinois, for example, was $3.725 on March 23. That price was
about 42.5 cents under July 2007 futures. The basis is about 6
cents weaker than at this time last year and about 20 cents
weaker than the four-year average basis for the third week of
March.
"The current July basis is at about the same level as
experienced at the end of harvest last fall," said Good. "The
implication is that storage hedges using the July 2007 corn
contract have not yet earned a positive return, let alone
covered the cost of storage.
"The continuation of a weak basis suggests that the flow of
corn to market is sufficient to meet the accelerated level of
consumption associated with larger exports and increased
processing use of corn for ethanol. A weak basis is likely to
persist until there is some evidence of tightness in corn
supplies in the country."
For soybeans, the average spot cash bid in south-central
Illinois on March 23 was $7.27. That price was about 58 cents
under July 2007 futures. The basis is about 14.5 cents weaker
than on the same date last year and 36 cents weaker than the
four-year average basis on that date.
"The current July basis is about 15 cents stronger than the
weakest basis at harvest time," said Good. "Storage hedges based
on the July contract, then, may have earned a positive return,
but that return has not covered storage and interest costs.
"The extremely weak basis experienced since harvest time
reflects higher soybean futures prices driven by higher corn
prices in the face of a surplus of soybeans. The recent slowdown
in the domestic crush rate, the harvest of a record-large South
American crop, and record levels of domestic soybean stocks
suggest that the basis will continue to be weak during the
remainder of the marketing year."
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 For the 2007 corn crop, the average bid for harvest delivery of
corn in south-central Illinois was $3.745 on March 23. That bid was
36 cents under December futures, about 7 cents weaker than the basis
on the same date last year and 14 cents weaker than the four-year
average basis on that date.
"At least part of the basis weakness may be associated with the
expectation of a much larger corn crop in 2007 and issues with
storage capacity," said Good. "The USDA's March 30 Prospective
Plantings report will provide some insight on the potential size of
the corn crop, but it is likely that nationwide storage capacity
issues will not be any greater than in recent years, particularly
those of 2005."
A U.S. corn crop of 12.5 billion bushels, for example, would be 2
billion larger than the 2006 crop, but year-ending stocks of
old-crop corn will be about 1.2 billion smaller than at harvest time
in 2006, suggesting an 800-million-bushel larger supply, Good added.
"The potential supply, however, is about the same as in 2005,
when year-ending stocks of old crop corn exceeded 2.1 billion
bushels," he noted. "In addition, storage capacity is being added.
The USDA estimates of grain storage capacity included in the
December Grain Stocks report indicated that 390 million bushels of
capacity were added in 2006. Expansion may be even larger in 2007."
Finally, he added, the fall supply of soybeans (production plus
carryover stocks) will likely be smaller than in the fall of 2006.
The average harvest bid for soybeans in south-central Illinois on
March 23 was $7.78, 38 cents under November 2007 futures. That basis
was about 9 cents weaker than on the same date last year and 14
cents weaker than the four-year average basis on that date.
"The new-crop basis is also weaker than the actual harvest-time
basis experienced in recent history, except in 2005 when Hurricane
Katrina closed the Gulf port for a period of time," Good said. "The
weak basis currently being experienced is likely a function of high
soybean futures prices resulting from high corn prices and
anticipation of storage capacity issue.
"As with corn, the storage capacity issues may not be as
extensive as expected, but with substantial regional variation
possible."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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