KSU Weekly Grain Market Review (7/24/2020) – “Docile” Grain Futures, **BUT** Dynamic Local Basis Trends in Kansas Corn, Sorghum, Soybeans, and Wheat Markets

The Weekly Grain Market Review for Friday, July 24, 2020 is provided by KSU Extension Agricultural Economist Daniel O’Brien – with this presentation available on the www.AgManager.info website at the following web address:

https://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

A recording of the interview between Eric Atkinson and Daniel O’Brien can be seen at the following address on the www.AgManager.info website later on the afternoon of Friday, July 24th:

https://www.agmanager.info/news#recent-videos

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The KSU Agriculture Today Radio Program was aired on Friday, July 24, 2020 and can be found at the following web address:

https://www.ksre.k-state.edu/news/radio/live/ksrn.html

The focus of this grain market update is on the following issues:

1. Corn Market Issues: A moderately “spotty” crop soil moisture situation now exists across the U.S. Corn Belt. The July 21st U.S. Drought Monitor map indicates that dry areas exist in eastern Nebraska – western Iowa, parts of southeast and western Kansas, western North Dakota and South Dakota, western Oklahoma and the Texas Panhandle, Indiana, Ohio, Wisconsin, and Southern Missouri. However, overall the U.S. corn market remains optimistic about the size of the 2020 U.S. Corn crop, as shown by DEC 2020 Corn futures at harvest time trading near $3.35 per bushel on Thursday-Friday, July 23-24, 2020. Recent sizable U.S. corn export sales to China and other have provided some support for the market cash market via local basis bids – even though Corn Futures have only been minimally responsive to this news thus far.

Ethanol Plant Corn Basis bids in Kansas are currently the strongest in the United States with bids on July 23rd ranging from $3.42 1/2 to $3.67 1/2 per bushel, with basis bids of +$0.15 to +$0.40 per bushel over SEPT 2020 Corn futures. Ohio is the next closest with a range of basis bids of +$0.05 to +$0.25 per bushel over SEPT 2020 Corn futures. Strong basis bids at Kansas ethanol plants are indicative of a return toward financial health of the U.S. ethanol demand in general and the Kansas ethanol industry in particular.

Selected major grain elevator / terminal basis bids for Kansas corn are generally strong, especially in the western 1/3 and southeast Kansas.

- In Garden City in southwest KS cash prices on 7/23 were $3.43 /bu, basis = $0.15 over SEPT 2020 Corn futures.

- In Columbus in southeast Kansas, cash prices were $3.43 /bu, basis = $0.15 over SEPT 2020 Corn futures.

- In Colby in northwest KS cash prices were $3.26 /bu, basis = $0.02 under SEPT 2020 Corn futures.

- In Atchison in northeast KS cash prices were $3.26 /bu, basis = $0.02 under SEPT 2020 Corn futures.

- In Hutchinson in south central KS cash prices ranged from $3.09 to $3.16 /bu, basis = $0.19 to $0.12 under SEPT 2020 Corn futures.

- In Salina in north central KS cash prices ranged from $2.96 to $3.03 /bu, basis = $0.32 to $0.25 under SEPT 2020 Corn futures.

2. Grain Sorghum Market Issues: Just as for corn, in the central and southern plains states where Grain Sorghum is a competitive crop enterprise, 2020 grain sorghum prospects are still uncertain due to dry conditions in parts of the central and southern plains states. A key supportive factor to farm level grain sorghum basis and cash bids has been the improved pace of U.S. grain sorghum exports to China that has occurred in 2020. However, political tensions between the U.S. and China adds uncertainty to future U.S. grain sorghum export prospects.

Ethanol Plant Grain Sorghum Basis bids in Kansas on July 23rd were listed as one statewide reported bid of $3.37 1/2 per bushel, with a basis bid of +$0.10 per bushel over SEPT 2020 Corn futures. If Chinese grain sorghum export demand was not as strong as it is, then it is likely that ethanol production in the western Corn Belt would take a much larger share of available U.S. grain sorghum supplies. As it is, when U.S. sorghum export demand is strong, grain sorghum ethanol and other domestic uses become “crowded out”, being reduced in favor of sorghum export demand.

Selected major grain elevator / terminal basis bids for Kansas grain sorghum are now EXTREMELY STRONG across the state of Kansas.

- On Thursday, July 23rd, in Hutchinson in south central KS, cash prices were $3.51-$3.73 /bu, basis = $0.23-$0.45 over SEPT 2020 Corn.

- Similarly, in Salina in north central KS, cash prices were $3.51-$3.63 /bu, basis = $0.15 over DEC 2020 Corn futures, and $0.25 over SEPT 2020 Corn futures, respectively.

- Grain sorghum basis bids at major grain elevator / terminals across the rest of the state were all “par” futures, i.e., cash $ = futures $ as their weakest to a strong or “narrow” as $0.30 over SEPT 2020 corn.

3. Soybean Market Issues: Similar weather and crop progress conditions that have affected or may affect the 2020 U.S. corn crop may also impact the 2020 U.S. soybean crop. And as with corn and grain sorghum, recent Chinese export purchases have provided support for soybean futures. Kansas soybean basis levels have been “strong” across the state except for northeast where they have been only average in comparison to the 2016-2019 period.

Selected major grain elevator / terminal basis bids for Kansas soybeans are the strongest they have been since and including year 2016 at selected locations in the state.

- In Atchison in northeast KS cash prices on 7/23 were $8.68 /bu, basis = $0.32 under NOV 2020 Soybean futures (equivalent to $0.38 under AUG 2020 Soybean futures).

- In Salina in north central KS cash prices on 7/23 were $8.61 /bu, basis = $0.45 under AUGUST 2020 Soybean futures.

- In Columbus in southeast Kansas, cash prices were $8.58 /bu, basis = $0.48 under AUGUST 2020 Soybean futures.

- In Hutchinson in south central KS, cash prices on 7/23 ranged from $8.43 to $8.50 /bu, basis = $0.63-$0.56 under AUGUST 2020 Soybean futures

- In Garden City in southwest KS cash prices were $8.11-$8.16 /bu, basis = $0.95-$0.90 under AUGUST 2020 Soybean futures.

- In Colby in northwest KS cash prices on 7/23 were $8.06 /bu, basis = $1.00 under AUGUST 2020 Soybean futures.

4. Wheat Market Issues: With the 2020 Kansas Hard Red Winter wheat harvest completed, the attention of the U.S. wheat market turns to the coming spring wheat harvest in the northern states, and the white wheat harvest in the Pacific Northwest and northern Mountain states. Some wheat supply-demand challenges have occurred in competitive World wheat exporting countries, helping to support U.S. wheat exports and wheat futures and cash markets.

Kansas wheat cash prices at major terminals / elevators around the state generally have better than average basis levels but not stronger than usual except in the southeast part of the the state.

- In Hutchinson, Salina and Topeka in the south central, north central, and northeast sections of KS, cash wheat prices on 7/23 were all $4.31 /bu, basis = $0.10 under SEPT 2020 Kansas HRW wheat futures.

- In Columbus in the southeast part of KS, cash wheat prices on 7/23 were near $4.31-$4.33 /bu, basis = $0.08-$0.10 under SEPT 2020 Kansas HRW wheat futures.

- In Garden City in the southwest part of KS, cash wheat prices on 7/23 were $4.11 /bu, basis = $0.30 under SEPT 2020 Kansas HRW wheat futures.

- In Colby in northwest KS, cash wheat prices on 7/23 were $4.04 /bu, basis = $0.37 under SEPT 2020 Kansas HRW wheat futures.

Concluding Thoughts

We are in a time in the grain markets where the attention of traders seems to be exclusively on “aggregate” 2020 summer crop production prospects. And since at this time there are not recognizable, immediate threats to the size of U.S. fall harvested crops, grain trader’s narrative consensus seems focused on CME DEC 2020 corn and NOV 2020 soybean futures likely now to either stay low or decline into fall harvest.

However, we have these other emerging grain supply-demand factors that are effecting even the Kansas grain markets – as they are driving and/or forcing agribusinesses who make their livings in the cash markets to either buy or sell, use or store or transport grain, etc. If the grain futures are not representing or reflecting these other important market factors, that leaves the agribusinesses with their choice of grain basis bids as the remaining tool available to market participants to use as they to go into their local / regional grain markets and “make things happen”.

Given the apparent attention of the broader grain markets on 2020 crop production issues, and the resulting pretty much sideways-to-lower movements in corn, soybean and wheat futures, then basis is left to the local market competitors to reflect and account for these other grain market supply-demand factors.

And that is what appears to be happening in the Kansas grain markets – as basis is reflecting the dynamics of broader grain supply-demand issues while the futures markets are at least temporarily focused largely on 2020 grain production prospects in the U.S..