Audio Transcript:

James Mintert: Welcome to Purdue Commercial AgCast, the Purdue University Center for Commercial Agriculture’s podcast, featuring farm management news and information. I’m your host, James Mintert, director of the Purdue Center for Commercial Agriculture, and joining me today is my colleague, Dr. Nathan Thompson, who’s an associate professor of ag economics here at Purdue.

Today’s podcast focuses on what’s been taking place with respect to corn basis in the Eastern Corn Belt. And we’ll also take a look at the May/July CBT corn spread, as well as the July/September CBT corn spread. And then kind of wrap up with some discussion about how you might pursue some marketing strategies for the remainder of the ’22 crop that you might have in storage.

[00:42 Cash bids for deferred delivery are lower than nearby bids]

And so, Nathan, you know your chart that shows forward contract bids. It’s kind of interesting that May contract and then the June bids don’t have the typical relationship. You’ve got June showing roughly a 10 cent discount to what’s being offered here in May. And that’s kind of interesting.

Nathanael Thompson: Yeah. So that’s not the typical structure that we expect to see in those bids. Again, it’s not unusual or it’s not that it never happens that we see kind of more future bids drop relative to kind of the nearby bids, but it does happen. But it raises some questions. Right now we’re looking at, for April delivery, a cash price of $6 and 56 cents, we go to May same $6.56 bid. But as you move past that into June, right, that bid drops by about 10 cents. And so when you see that happen, you kind of have to ask, well, well, why? What’s going on? And to, to answer that question, there’s kind of two underlying components of those cash bids that we have to look at one being what’s going on with futures prices, and in particular, as we look at these bids over time, right into the future, we have to ask the question of, okay, well what is the spread between futures prices because of as we move out into the future, right? We would expect, typically to see positive carry being the spread between the nearby and the deferred futures contract would be positive.

That would give kind of this increasing structure to those, those cash prices or those cash bids. And then also basis is the other component of that, right? So typically we expect to see appreciation or increases in those basis bids as we move kind of further into the crop marketing year. And so in this particular case, right when we see this decline in those cash bids we kind of have to dig into what’s going on here.

And when you do, it’s, it’s kind of interesting to think about what’s, what’s happening here. The first being, when you go and you immediately think about, well, what’s going on with futures price spreads? Well, what’s interesting is that, When you look at that, those really are irrelevant to our discussion here because most elevators that I’ve looked at here, kind of in the Eastern Corn Belt, particularly in, in central Indiana have went ahead and moved their current April delivery bids out of the May futures contract, which they would typically use this time of year and into the July Corn Futures contract and so.

We’re using the exact same futures price for all of the bids that we’re looking at from now until, you know, the, the summer months, which is not the typical thing that we would see. And so the futures price spread kind of becomes obsolete. In, in the sense of the cash bids. Right? And we’ll talk more about those spreads here in just a minute.

And then when you look at the basis bids, the basis bid is also obviously declining. That’s what’s leading to this decline in, in the cash price. So those two things are kind of interesting and, and, and cause us to think about, okay, well why, why do we have this move from the May into the July futures?

And the reason is that we’ve had an inversion in the futures market, right? Meaning. The nearby futures contract, the May ’23 Corn Futures is trading for above the the July ’23 corn futures, right? And so typically we would expect the opposite. We typically expect to see positive carry, meaning that nearby futures trade for below more deferred futures contracts.

And the reason. Is that’s the, the market’s way of paying us to store, right? It’s giving us the incentive to carry that grain forward into the future. And so if you look at the spread between May and July ’23, corn futures going back to the beginning of, of 2023, so January, 2023. We started the, the calendar year with an inversion, meaning that that may contract has been trading above the July contract, going all the way back to the beginning of January.

But what’s interesting is the size of the inversion and how that’s changed, right? So again, for the, the bulk of, of the 2023 calendar year, that inversion has been about 10 cents, meaning right? There’s been a 10 cent premium to the May contract relative to the July ’23 contract.

However, as we’ve gotten, you know, closer to where we are today, so going back to about the second week of March, that inversion has started to increase. Right? And so it went from about 10 cents to today being about 30 to 33 cent, I think, inversion. Meaning that right now where we are, kind of third week of April that nearby May ’23 contract is trading for 33 cents more than the deferred July ’23 contract.

So again, that inversion is increasing as we move closer to the expiration of that May contract.

James Mintert: So, you know, Nathan, looking at the chart that you developed here, that kind of shows how that inversion has changed over time. Going back to the beginning of the year, the first week of January, the inversion was a nickel and then it kind of, as you mentioned, went to a dime and then it really changed in March.

And that of course is what we were making the flip transition to March, being the front month contract or actually exiting the front month and, and May coming the front month. Right. That kind of leads us to the question of what’s gonna happen going forward here when, when the May contract goes off the board in May, are we gonna see something happening with respect to the July, September spread, for example?

So we’ll talk about that a little more later. But yeah, that. The chart really is pretty interesting. And for, for listeners I just wanna point out if you didn’t know this, we do post the slides that Nathan and I are talking about today on the website, so you can download these slides and take a closer look at the charts if you want to. But it does tell a pretty interesting story as you, as you look at that.

[05:56 Tight Corn Stocks]

And of course, one of the things that this all ties back to is just how tight corn stocks are, right? So USDA just recently published their March one estimate of U.S. corn stocks. And we took a look at those as a percentage of the prior crop year’s total usage. And that tells an interesting story as well. Those corn stocks are relatively tight. You know, if you look at the average of the last, oh, roughly a little over 20 years, going back to the year 2000. The average March one corn stock’s estimate is a percentage of usage is about 56%. This year’s estimate works out to about 54%.

You go back and look at ’22 and ’21, those were both at 52%. So those are pretty low prior years, though you look at roughly 2015 through about 2020 or maybe even 20 19, we were running well above that average. So we’ve had a relatively tight corn stock situation here, not only in ’23, but really the last couple of years.

And start to take us back to a timeframe. For example, in 2014, that March one corn stock estimate was down at 52%. 2013 it was 49%. 2012, it was 48%. 2011 it was 50%. We’re not quite to those levels. But it starts to bring into play from a historical perspective, looking at what took place those years and maybe seeing if that had some influence on what was going on with basis. Right?

Nathanael Thompson: Exactly. Right. So that’s, that’s one of the things we wanna look to, this kind of idea of tight supplies being one potential factor leading to this, this inversion in futures markets. And so that’s kind of what I wanted to do was look at, okay, you know, we’ve, we’ve had this inversion this year and we want to kind of line up with what, how does that line up with what has happened in the past when we’ve seen inversions in the futures market, and how does that relate to what we just talked about in terms of those those, those stock numbers, right. Years where we’ve seen tighter stocks relative to use.

[07:46 May/July Corn Futures Spread]

So what I did was I just looked at the relationship between the May and July corn futures contract, and I went back somewhat arbitrarily. I chose 2010, so going back, you know, 13 or so years. The main thing was I wanted to make sure we had that 2012 drought in there, because that definitely was a year that stuck out on your chart in terms of, of stocks, but also would be a year where we would expect to see an inversion based on those tight stocks.

So moving back to 2010, looked at each year what that relationship has been. And the first thing I did was say, okay, well I want to take out what I’m gonna call the quote unquote normal years. So years where we did not see an inversion in that July, May to July corn futures contract, and just take an average to kind of see what is the typical carry that we see in the market.

From May to July, and it, if you look at that, it’s, you know, right around five to 10 cents, right? We typically see July Corn Futures trading for about 10 cents above May corn futures looking at the January to April timeframe. Right?

Then if you take that as, okay, well that’s maybe the typical pattern then I wanted to pull out, okay, what about years where we did see that relationship between May and July corn futures invert, where that May contract was trading for a premium above the, the July contract. And so, again, it’s interesting that it lines up very closely with the years that that had tighter stocks on, on that, that March 1st stock report.

The first two to kind of look at would be 2012 and 2013. So again, that would be 2012 would be, you know, January to April of 2012. So, you know, we haven’t actually had the drought yet.

James Mintert: Mm-hmm.

Nathanael Thompson: But we’ve planted that crop and are starting to maybe see some dry conditions or, or the potential for that to develop.

And so really we started out in January of 2012, with normal carry in the market. And then what we saw was that declined and actually eventually inverted where that May ’12 contract was trading eventually for above the July 2012 contract. 2013. Right. So now we’re coming out of the drought year and marketing that crop, and we started the year within inversion, and that just continued to widen as we move towards expiration of the May contract.

Then interestingly enough, as you alluded to, we’ve had relatively tight stocks the last couple of years now that hasn’t been exactly the same as what was happening in ’12 and ’13 in terms of a drought motivator. Here, it’s really been kind of demand outpacing supply. So, you know, not the exact same underlying factors, but the same result in terms of tight stocks being the motivator for an inversion in the futures market.

And so, again, in 2021, we started the year with this May contract trading for, for higher than the July contract. And again, that relationship continued to widen with that inversion getting larger to the point where when, when we got to the end of April, it was a 42 cent inversion. May ’21 corn futures trading for 42 cents higher than July, which is pretty, pretty big inversion.

2022, a little bit different. Again, we were looking at an inversion in those two contracts. Not really big. When we get to March we have the Russian invasion of Ukraine that had a pretty big impact on kind of global corn markets causing an inversion, meaning the market was saying like, look, we’ve lost all this supply. We, we need corn. And so it was sending a signal that we need the corn, now we need to get it to market. And so we saw this kind of big jump in that in inversion between May and July corn futures. That really worked itself out pretty quickly as the world kind of moved grain supplies to kind of meet those, those new demands, so to speak.

And really that leveled off and we got to the point where that inversion pretty much went away by the end of April.

James Mintert: That was very interesting because I think initially when Russia invaded Ukraine, the world was kind of assuming that none of those bushels would be available.

Nathanael Thompson: Right.

James Mintert: And it turned out the Ukrainians were surprisingly effective at continuing to move grain. Even in an environment before they signed the grain court ordeal, they were still managing to get some corn out and the market figured that out. And that really changed the situation pretty rapidly and had a big impact, I think on, on the spreads.

Nathanael Thompson: It did. Right. And it just shows up here.

And again, that’s a lingering issue that we’re still, still dealing with today. So that, all of that brings us to, okay, the ’23 crop year and what’s going on this year. Again, we started out in January of ’23 where these two contracts were already inverted with May ’23 trading for above July ’23 have we already have, have talked about, and again, that’s kind of been steadily widening. That inverse has gotten larger to the point now where we sit at the kind of third week of April or so, about a 33 cent inversion. Meaning May ’23 trading for about 33 cents more than that July ’23 contract. That’s kind of where we are in terms of today. But that kind of begs a couple of questions as far as, well where, where are these markets going?

And then what does that mean for my marketing of, of old crop? Corn that I may still have in the bin as we approach the summer of 2023.

James Mintert: Yeah, and one of the important things to remember here, of course, is I think a lot of listeners are used to thinking about a premium market where the deferred contract is priced higher than the nearby.

And you can predict from a theoretical perspective, the maximum premium that the deferred would have over a nearby, at least within a crop year because of the cost of storage, right?

Nathanael Thompson: Right.

James Mintert: There’s no theoretical maximum to the inversion, right? Because the inversion is simply saying to, to the marketplace, the market would prefer that you deliver corn sooner rather than later.

And there’s no limit to how strongly the market might prefer that corn being delivered sooner rather than later. So you know where I’m looking at the ’21 line on your chart, and of course, it topped out at a, at a inversion of about 42 cents. Our recent numbers are 33. We could hit that 42, right? I mean, that’s, there’s no, there’s nothing saying it couldn’t happen, right?

Nathanael Thompson: Yeah, absolutely. I mean, when you look at the, the years that I’ve pulled out here, the current year, ’23 definitely appears to be following a very similar pattern to what happened when you go back to ’21. If you take all of the years that are there, that’s kind of the most similar year, I think to compare to.

It’s pretty recent, right? It’s not, not that long ago. And you know, similar factors are at play when we think about what’s causing the inversion that we’re seeing here. And so, you know, it definitely seems possible that we could see that. And as we approach kind of expiration of that May contract, I think we would expect to see probably a little bit more widening.

Will he get to the 42 cents? I don’t know, but it’s definitely following a similar pattern there to what happened in ’21.

James Mintert: Yeah, so that’s an important point because we talk about basis and a lot of the work you’ve done with basis. It is, puts a heavy weight on recent data. Yep. And what’s really going on there is it says that market structure changes over time and the recent data captures market structure that’s pretty comparable to today and makes it a good tool for forecasting.

The big market structure difference between ’21 and ’22 is the whole Black Sea region. Right?

Nathanael Thompson: Right.

James Mintert: Which makes us a little bit of a wild card in that sense. Right?

Nathanael Thompson: That right.

James Mintert: Okay, so let’s take a closer look at corn basis here in Indiana.

[14:55 Impact on Basis]

Nathanael Thompson: Yeah. So then what you have to kind of start to think about is, okay, well, given what’s going on with futures prices, how does that kind of trickle through or impact the basis picture?

And so I wanna take you through kind of a sequence of things to kind of think about and look at. So the first, let’s just think about current year basis levels relative to that July ’23 futures contract. So I’m gonna go all the way back to, you know, the beginning of the crop marketing year and look at it consistently relative to July ’23.

And I wanna compare what’s happening currently with what I would typically use as my forecast, which is for corn, the historical three year average. So looking at the most recent three crop marketing years. What was the basis pattern in a particular region? Here I’m gonna look at central Indiana, just as you know, a case study, but you’d wanna look kind of at your particular region.

So Central Indiana, kind of what was the basis pattern relative to that July contract for the past three years. And when you look at that kind of three year average relative to what’s happened this year, what you notice is again, the basis pattern was pretty similar for most of the crop marketing year to that three year average.

But again, as we’ve moved towards the most recent couple months, we see a divergence. And, and again, that’s coming back to this idea of, because of this inversion in futures prices, right? Because that July ’23 contractors trading at such a discount relative to nearby May. That’s caused basis, right, relative to that July contract to jump up quite a bit, right?

So if you look at that, we’re currently about 25 cents over in terms of current basis bids relative to the historical three year average, the most recent three years. So very strong basis relative to that July ’23 futures contract. When we talk about this year relative to the most current three years.

James Mintert: It’s probably worth just mentioning how much that basis has improved since harvest time.

So if you look at harvest time basis, you know, that basis was down around minus 35.

Nathanael Thompson: Mm-hmm.

James Mintert: And recent values about plus 25, that’s a pretty big basis move and, and larger than, than average, as you pointed out. Right?

Nathanael Thompson: Yeah. Much larger given again, the strength we’ve seen in really just the last four to six weeks. Right. Otherwise we were really, like I said, right on, on track with that, that historical average.

So then the next thing to think about was, okay, well we know that this year’s different given what we’ve already talked about with this inversion in futures markets. And so what I wanted to do was say, okay, well if we know that there are some similar years, like we’ve already talked about looking at these years previously where we saw inversions in futures markets, and again, tying that back to at least one factor, being those tight stock years. Was to say, okay, well what was the basis pattern in those particular years?

James Mintert: Mm-hmm.

Nathanael Thompson: And so the first thing that I wanted to look at was that I said, okay, let’s just look at three particular years that kind of stuck out when we talked about those years where we saw inversions.

So going back to 2011-2012 crop marketing. 2012-2013. And then again most recently that 2020-2021. I left out that 2021-2022 because again there was some inversion and again, there was some tight carryovers, but because of the Russia invasion of Ukraine and that really normalizing pretty quickly, I didn’t find that to be maybe the best representation.

Again, I could add it, it wouldn’t change a lot here. So we’re just looking at those three years, ‘ 11, ’12 and ’20 harvest years, and we’re really looking at the spring that follows that. And again, when you do that and you then look at the average of those years, relative to the current ’23, the lines don’t match up where that was a perfect predictor kind of throughout the crop marketing year.

But what’s most telling is when you look at recent weeks, right? The basis levels recently are very, very similar to the basis levels of the average of those years where we saw inversions in that May-July futures relationship. And so again, it’s just indicating that we typically see stronger basis in those years where we’re seeing an inversion in that May-July futures relationship.

James Mintert: One of the things that’s interesting once again, is the fact that the basis last fall was much weaker than it was in those prior years.

Nathanael Thompson: Yep.

James Mintert: And as a result, when you look at it, the basis improvement since last fall was actually bigger than what you’re shown for those three year averages.

Even though that black line and the blue line basically wind up converging on each other. And I just wanna point out to listeners any of you could do this, the same analysis on the crop basis tool. This is one of the cool things about the crop basis tool, is you can go back and do these individual comparisons of what’s going on today versus what happened at some point in the past.

You’re not locked into some arbitrary three year average, you can go back and make these individual comparisons. When you built the tool, that was one of the objectives. And that’s pretty handy, right?

Nathanael Thompson: Absolutely. That was kind of the goal to be able to do this sort of thing. So then the last comparison that I want to make, and again, this is very similar to what we just did on the previous kind of discussion was, I said let’s just look at the 2020-2021 crop year. That was a couple years ago, but again, we’ve talked about how, in terms of the spread that relationship was very similar to what we’ve seen going on this year. And when you look at basis patterns in those two years, so 2023 and then going back to 2020-2021, it’s pretty interesting to see how similar the basis pattern this year is to that particular year, and that is spans the entire crop marketing year. Right, minus maybe the first few weeks of the marketing year where we had relatively strong basis this year that pretty quickly aligned with that basis pattern in 2020-2021. And again, has followed through even as we’ve moved into recent weeks where again, we showed you compared to kind of the recent historical average basis has really jumped up. But when you look at it relative to just 2020-2021, where we saw that inversion in futures markets similar to what we’ve seen this year, the basis pattern is very, very similar. You know, almost identical to, to where it was back in this time in 2020.

James Mintert: So let’s take a look at the July-September corn future spread, because that’s gonna be the relevant future spread very soon, right?

Nathanael Thompson: Yeah. So, you know, all of this analysis of May-July is interesting and it provides an interesting look at maybe what’s going on on the basis side of things, in terms of what’s happening there.

But as we approach the expiration of that May contract and it goes off the board, the question is like, well what’s gonna happen, number one to July futures overall, but then what’s gonna happen to that July-September spread? Right. So, I mean, the first thing I think to address, and I think we’ve kind of already alluded to this a little bit, is when that May contract goes off the board.

You know, all of the information that we have, the likely outcome is going to be that July contract is going to come up, right? There’s going to be some kind of normalization there, and this kind of inversion that we’re seeing now will kinda get soaked up by that July contract. And we would expect to see it increase.

[21:30 July/September Corn Futures Spread]

The question then becomes, okay, well what about the spread between July and September ’23 corn futures? So again, I just did a similar sort of analysis where we were looking at the spread between July and September corn futures. And again, I just went back to 2010, I averaged all the years that did not have a futures price inversion.

And so when you average those together you see this pretty consistent, positive spread between July-September corn futures, somewhere between, again, five to to 10 cents and varies a little bit year to year. But then you pull out the years where we have these inversions, and again, there’s, there’s kind of a couple of interesting things here.

Really the same explanations as, as what we’ve already talked about with the May-July futures relationship. But I think one of the things that’s interesting to me is we think about you know, what, what happens to that spread, right? So when we start the year, or when we get to this time of year and we have this inversion in the futures market, kind of what happens is if we’re expecting a normal crop in the coming harvest.

So in this year, as we look forward to 2023 harvest, if we expect a, a normal harvest or a good crop, then that inversion is going to widen. Right as we move towards,

James Mintert: Or at least remain wide, right?

Nathanael Thompson: It will remain wide or potentially continue to widen. And again, the the reason being, the, the market is sending the signal.

Like we know corn is coming in the fall, but we need it now. And so it’s, it’s inverting and it’s giving the incentive not to store, but to bring commodity to market now. The flip side of that is that that doesn’t hold, if we think about looking forward. So we have an inversion now, and if we look forward and we’re expecting potential crop problems with the current crop, right? The crop that’s in the ground or being planted now, given where we’re, we’re recording this, this year. Then we would actually expect to see that inversion potentially moderate, right? Meaning that it would not be as big. And again, what, when we look at it this, this July-September relationship that becomes a little more obvious on this chart than it does on the the May-July chart being, because, you know, on the May-July chart, we kind of stopped looking at the chart at the end of April.

We haven’t really had a lot of information about new crop at that point, right? So that we don’t really get that part of the relationship. When we look at it that way, when we look at it this way, again, July-September relationship, we start to see that. Again, just kind of as an example, right? 2012 being a great example where we, we had an inversion in, in July to September, corn futures that year.

But as the crop grew that summer, we knew we had a drought. We knew we were gonna have production problems. That inversion actually started to shrink, meaning that the strength in July, relative to September was moderated. Now it was still inverted, right?

James Mintert: Mm-hmm.

Nathanael Thompson: So the crop or the market was still sending this signal. We, we want crop now. But it was like, well, We, we need to, to ration some of this because we know we’re gonna have a shortfall even once we get to harvest. That’s kind of contrary to if you look at a year like 2020-2021, which we’ve talked a lot about. Again, it wasn’t exactly the same situation, wasn’t a drought, was more of a demand driven, tight stock situation.

And so in that particular year, again, we started out with that inversion and as we progressed through kind of the growing season for that ’20-‘ 21 crop. We saw like, this is gonna be a normal crop, we’re not gonna have production problems.

And so that inversion, as you mentioned, stayed the same or even widened as we move towards expiration of that September contract. So that was just, that’s just something I think that you can take away from, from this particular view of that relationship between futures contracts. By having kind of a little more time to look at the current growing season, we get a little more information about what happens. To those relationships when we start to factor in kind of the following crop years production.

James Mintert: And I guess the other thing to think about there, Nathan, is we’re either at or rapidly approaching a critical juncture.

Nathanael Thompson: Yep.

James Mintert: Right. Because we’re gonna get information here very soon with respect to where we’re at with this crop going into the ground.

That’s the first question mark, I guess, for people is getting crop planted in a timely fashion. And then the next one is, you know, how are the growing conditions going as the crop progresses? So, how this develops over the next roughly four weeks is gonna be pretty interesting.

Nathanael Thompson: Yeah, I think we’ll gain a lot of information about maybe what to expect from some of these relationships as we move into, like you mentioned, just the next four or so weeks.

[25:56 U.S. Corn Exports]

James Mintert: So if you look at what’s going on in terms of these spreads and thinking about what’s taken place in the export channels? That’s kind of interesting. Corn exports this year have been relatively weak. Looking at the weekly export shipment data from USDA, I think through the 13th of April, weekly crop exports of corn were down about 30% compared to the five year average. And actually almost 38% lower than to, compared to the ’21 crop here.

So pretty soft exports. If you compare USDA’s WASDE forecast. Compared to the ’21 actual numbers, their forecast is for exports to drop about 13%. So the implication is we need to see these exports really pick up these next few weeks. And I wanna emphasize these are the actual shipments. The commitment data does look better than this because there have been some sales.

But again, if you come back to the inversions out there, there hasn’t been a lot of incentive for an importer to jump on this right now, right?

Nathanael Thompson: No. Right. I mean, the structure of the futures market is kind of sending the same signal. From a buyer’s perspective, right. Sending the signal to them like, hold off.

James Mintert: Yeah, hold off. That’s exactly what’s going on. At least that’s certainly the way it looks. So that’s gonna be interesting to see how that shakes out. And I guess, you know, just to maybe shed a little more light on what’s going on, it’s interesting to look at some of the major importers of US corn and see where the differences are.

And I know a lot of people focus pretty heavily on China, and it is true our exports to China are down significantly. I think so far, this year we’ve shipped about 187 million bushels to China. Same time last year it was about 305, so that’s a significant drop off. But actually, if you look at Japan, the drop off to Japan has actually been sharper.

This year we’ve only shipped 118 million bushels to Japan. That compares to 239 last year. And then Mexico, which in recent years has been our largest customer. Our export shipments of Mexico are down, but not very much. This year, I think so far we’ve shipped about 357 million bushels. Last year at this time we were at about 386, so that’s, that’s the smallest drop off.

And the biggest one is really Japan, followed by China. So it’ll be interesting to see how that shakes out. And of course, some of that’s market driven. Some of that’s dollar value, right? Currency fluctuations. And then obviously with respect to China, there’s the whole geopolitical issue, which is pretty difficult to disentangle. But so let’s be kind of interesting in thinking about where that’s going.

So Nathan, let’s talk just a little bit about where this might head going forward, because before the podcast started, you and I were talking about an article we saw by one of the private market analysts looking at how this has played out the last couple of years.

And we’ve been talking about, you know, what’s gonna happen when that May contract goes off the board, what’s likely to happen? And if you look at ’21 and you look at ’22, they didn’t do the same thing. In fact it was, it was quite striking in terms of how different they were. Right?

Nathanael Thompson: Yeah. Yeah. So I mean, and again, we’ve kind of alluded to this, right?

We’ve been leaning towards ’21 being kind of the more similar year in terms of the patterns that we’ve seen thus far. Maybe some of the factors that, that drove that. And again, in ’21, what happened is kind of what we’ve alluded to that when that May contract went off the board, the July rose to kind of make up that difference.

2022 was kind of the opposite effect. And so the question is like, what’s gonna to drive that? Right? And so we really need to pay attention and I think as we’ve alluded to the next couple of weeks, as we get into kind of new crop mode and thinking about what’s going on, there will be a big factor into thinking about what’s gonna happen as that May contract rolls off the board and what the relationships between some of these futures contracts are gonna be?

James Mintert: Yeah. Last year the July contract didn’t rise to offset the inversion, loss of the inversion, and we don’t know for sure why that is, right? We should be honest about that, but probably one of the reasons why is because of the changing situation in the Black Sea Region. About the time that that May contract was going off the board it be, it was starting to become more apparent that we were able to access those corn supplies a, a significant portion of those corn supplies coming outta the Black Sea region. That previously many people in the marketplace had assumed were not going to be available.

Nathanael Thompson: Right.

James Mintert: And that probably had an overriding influence with respect to what happened last year, and that could happen again this year. But it doesn’t seem like that’s exactly the same scenario. And that’s why maybe the ‘ 21 crop year might be a little better analogy in terms of going forward. Do you agree with that?

Nathanael Thompson: Yeah, I think so. I mean, and again, you know, I don’t, I’m not an expert on the war, but the things I’ve been reading is maybe we’re moving more towards the uncertainty than we are about expecting more grain to get out of Ukraine based on just kind of current, current information and current situation there.

So, yeah, I think that we definitely are leaning towards looking at that ’21 being the, the more relevant expectation in terms of what could potentially happen. Again, lots of things could change. But that’s something that I think that people are gonna be paying attention to.

[30:49 Marketing Strategies for Remainder of ’22 Crop in Storage]

James Mintert: So let’s come back and, and maybe draw some inferences here with respect to marketing strategy.

And so if, I think for a lot of our listeners probably still have some corn in storage. If they have been, you know, paying attention, I guess to some of the things we’ve been talking about over recent months, that’s probably a relatively modest percentage of their total. Maybe 10, 15, 20%, maybe 25% of their remaining ’22 crop in storage.

And in many cases, that’s probably not hedged, right. It’s probably simply open storage. And they’re thinking about what should I do? And you’ve done some work on the seasonals. That’s, I think, probably still very relevant in this context, right?

Nathanael Thompson: Yeah, definitely. I mean, if you’re, I think you have to separate people who are on hedge versus people who maybe have a hedge on for remaining crop.

If we start with the people that, you know, you’ve got no hedge, you know, you’ve done nothing pricing wise on those bushels that you have in storage. You know, there’s a lot of factors that are, are leaning towards potential for, for returns to be had still, as we move forward. Again, the market is currently sending a signal, right?

High futures on that May nearby contract and, and strong basis levels to, to deliver now. But when you kind of stack up a number of factors, right? You have the seasonal patterns, right? We’re at the point of the year as we get into crop planting, new crop, thinking about early season weather conditions.

The potential for, for futures to, to increase right between now and say June, maybe very early July. Father’s Day is a, a time of timeframe that a lot of people like to say in terms of those, those seasonal peaks in, in corn futures and soybean futures as well. So you’ve kind of got that seasonal factor at play.

And again, those aren’t guarantees, but those are, those are kind of seasonal, average seasonal patterns that we typically expect to see. Not to mention, we’ve already talked about this idea that, you know, as May goes off the board, we’re really expecting probably strength in that July contract to make up for, as opposed to maybe what we saw in 2022 where that did not happen.

Then you got the basis piece. Right? And so again basis bids are strong currently in any time where we’re talking about tight stocks, which is what’s leading a lot, at least partially contributing to some of our discussion with this inversion and, and what’s going on in, in futures markets, right? That also means.

There are opportunities for basis to potentially be had, right? So if we continue to have kind of this discussion over, over tight stocks if we continue to expect good weather, right? Maybe, maybe just kind of some moderate basis play. If for some reason we have the potential for weather issues with the ’23 crop, then we really start to start thinking about some pretty big basis plays this summer.

Now, again, anytime we’re talking about summertime basis, our research has shown very volatile, you know, can go either direction very quickly. But I think when you kind of start stacking up some of these factors, seasonal patterns, what we’re expecting to see in terms of as May rolls off this inversion will cause that July corn futures contract to rise, potential for basis plays given kind of top tight stocks situations. All of those kind of feed into, if you’ve held on to smaller portion of, of grain. This really is kind of maybe the, the portion that you’re gambling on. There are some factors that that kind of stack up to say like, oh, maybe it doesn’t hurt to hang on a little bit longer.

Depending on your situation, you might want to take advantage of some of what’s being offered now, but you know, our research has shown having some on price grain, right? There are years where that can be a home run strategy. I mean, again, it has to be part of a broader portfolio of marketing strategies.

But again, if we’re talking about small, small portions of your crop, there are some factors that would kind of lead you to think like, Hey, maybe holding onto some of this and seeing what happens this summer could be an extremely favorable thing depending on kind of what happens here. Again, downside risk, but you know, that’s.

James Mintert: Yeah, and I think, you know, given that we’re talking about people that probably do have a small percentage of their crop remaining, if you’ve hung on this long, the seasonal factor would suggest, hang on a little bit longer, but pay close attention.

Nathanael Thompson: Yeah, for sure.

James Mintert: And I think the corollary to that is with respect to basis, there’s some basis variability. We always work with the averages over a, like a crop reporting district, for example, but there’s gonna be some variability among individual buyers and paying attention to what those basis changes might be on a day-to-day, week-to-week kind of a situation would be very helpful and actually reaching out to some of those merchandisers when you see something, take place and seeing if there might be some additional push, depending on the volume you might have available. There’s gonna be, there’s gonna be some interesting situations scattered across the corn belt where people are gonna have to probably ramp up the basis to keep the supplies moving at the time that they need ’em. Right?

Nathanael Thompson: That’s right. Yeah. And I again, like going back to our discussion, right, so that’s for on-edge people. I think you also have to think about the scenario for someone who maybe is hedged in particular, somebody who’s hedged into May. The strategy is probably different. And so like if you’re hedged into May, if you want to hang on, your option is you’re gonna have to roll that contract forward.

When you roll that because of the inversion, you’re gonna take a loss. Where we’re at today, that loss is gonna be, again, if you rolled it, you know, today or yesterday when we pulled this data, you got a 33 cent loss on the roll. You, your analysis is, well, am I expecting basis to increase by enough b etween now and when I make a cash sale to offset that.

Right. And, and I don’t think based on the, the basis charts that I’ve pulled from, from the, again, the regional average is that there’s probably that much basis play left again. It could happen individual locations, it could happen. But I think the analysis there is a little bit different. In that case, again, that might have been a really nice play if you were thinking about making some of these decisions earlier in the season.

But again, we didn’t know we were gonna be where we are today, say back in February or something. So again, the, some of the strategies here might be a little bit different depending on what you’ve done on the future side of things and, and that might change kind of what, what you’re analyzing there in terms of the factors that are at play.

James Mintert: Yeah, and to be clear, when we talk about a loss, it’s, it’s not actually a loss. When you roll the contract. The concern is that the July contract might rise. Right as the May contract goes off the board. And if that in fact turns out to be the case, that’s when the loss would occur on the July contract. Which is kind of a, maybe a little bit of a fuzzy point with respect to marketing strategies.

Nathanael Thompson: Sure.

James Mintert: So think about that a little bit and you know, I think for a lot of folks, you know, they’ve probably done reasonably well marketing their, their ’22 crops so far. They’ve got that component of their market strategy left to, to kind of complete, and this is just the time of year when you want to pay attention every day.

And think about, you know, if I’m not gonna sell today, why. And, and think about what the potential might be. But yeah, history would suggest these next few weeks could be pretty interesting and particularly this year.

So that wraps up our podcast for today. You can see the slides that we are using and, and kind of discussing today on our website.

And that’s purdue.edu/commercial ag. And of course, if you’re not already a subscriber to the podcast, you can do that on any of the major podcast providers as well as listen to the podcast on our website. So on behalf of the Center for Commercial Agriculture and my colleague Nathan Thompson, I’m Jim Mintert. Thanks for listening.