UPDATE 1-US cash corn bids tumble from lofty levels after soy drops

Thu Jul 25, 2013 8:14pm EDT

By Michael Hirtzer

CHICAGO, July 25 (Reuters) - U.S. cash corn bids fell hard from record-high levels on Thursday as a big drop in Chicago futures markets encouraged farmers to sell what remained of last year's harvest, analysts and grain merchants said.

However, strong demand by ethanol plants should prevent cash bids from falling much more, they said.

Corn basis bids fell as much as $1 a bushel at Midwest processing plants as Chicago Board of Trade September futures fell to a contract low of $4.92-1/4. The declines raised speculation that corn cash markets could see the same wave of selling that hit soybeans this week.

While corn bids dropped in many cases for the first time in weeks, soybeans bids fell for the fourth straight day.

"We sold corn yesterday at $2.40 bushel over futures - tonight there is no bid," said Joe Christopher, a veteran grain merchandiser for Crossroads Co-op in Sidney, Nebraska. "But I think it's a little early to reset the corn basis - corn demand is spread differently than beans."

Demand for corn from ethanol producers will be the key to basis moves until harvest begins, grains analysts say.

Good profit margins had ethanol plants bidding as much as $2 per bushel above Chicago Board of Trade corn futures, or $7 a bushel, this summer and they still made money, analysts said. Grain buyers had ratcheted up so-called basis bids to lofty levels as corn supplies dwindled to a 16-year low after last year's drought.

The stiff competition for what remains of last year's harvest could last as long as another month before farmers harvest the earliest-planted fields in what is forecast to be a record-large 13.95 billion bushel corn crop.

Earlier this week there were signs the corn basis was cracking. Two large processors in Cedar Rapids and Eddyville, owned by Cargill Inc in the No. 1 corn growing state of Iowa, saw increased deliveries from farmers and subsequently reduced the price they were willing to pay for that grain by as much as 95 cents.

But bids had increased to new all-time highs elsewhere in the United States, the world's largest corn producer.

An Indiana ethanol plant owned by Valero Energy Corp was bidding up to $1.90 over the futures while the basis of $1.70 is the highest ever in Decatur, Illinois, where Archer Daniels Midland Corp has its headquarters.

"It's totally different for corn than beans. Bean crushers can shut down in a moment's notice, but ethanol plants have a program going and they have to stick with it," a veteran Chicago cash-grain merchant said. "We have to get to new crop."

DECLINES IN SOY CAME SWIFTLY

Reduced export demand and a slowing soybean crush caused soybean futures to plunge more than 10 percent during the last three days - the largest such drop in nearly four years. Meanwhile, basis bids for soybeans tumbled as much as 86 cents. Farmers that could have sold their soybeans at more than $16 per bushel on Monday were now seeing prices less than $14.

"This week's price action is a real sign that the party is over from the high prices due to the 2012 drought," Rich Feltes, director of research for trade house R.J. O'Brien, said of the move in soybeans.

"Timing the transition for corn getting from old-crop to new-crop will be difficult, but there is old-crop corn available and most of it is in western Minnesota and eastern North Dakota according to our R.J. O'Brien branch offices," Feltes added.

U.S. Agriculture Department data last month showed the largest corn available outside of the traditional top two producers of Iowa and Illinois was in the northern Midwest and northern U.S. Plains states that were spared from some of last summer's worst drought conditions.

Illinois farmer Brent Johnson is hanging on to about 25,000 bushels of corn from last year. He said he will price it before the old-crop marketing year ends on Aug. 31 and is waiting to see whether prices rise before he pulls the trigger.

"We'll be unloading it by the end of August for sure," he said. "We'd be dumb not to."

Johnson had been hoping to sell his old-crop corn for $7.50 a bushel earlier this summer, but prices did not climb high enough. Now cash corn prices are below $7. That is still higher than new-crop corn prices that are hovering near $5.

Some growers do not have a target price and are holding corn as a "savings account" in case drought conditions return during the pollination phase that plays a large role in determining what the crop will yield.

"Inventories are getting low and what's left out there farmers don't want to let go of, and I don't know if we can make them," said Diane Klemme, a merchant at Grain Service Corp in Atlanta.

"Once they see corn ears on the plants and beans in the pods, will they say they have a crop and can now let go of this saving account? They thought they had a crop last year, too."

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