Subject: FACT – increasing concern in the AG Sector
As you know,
Acres in the field: 22.27
Weighted bushels by state using USDA yields: 3.750 Billion bushels
Weighted bushels unharvested in key states: 3.096 bil bu
Weighted bushels in ND, SD, WI, MN, MI: 1.431 bil bu
If we assume that test weights in the northern states average at 53#, that equates to 5.4% reduction or 78 mil bu that simply is not there
If test weights fall on the 3.750 bil bu just 1.5 pound on average that equates to 101 mil bu.
Now a grain company in ND issues a letter explaining to farmers why this is not good:
The biggest issues we are currently seeing is high moisture and low-test weight (TW). To be honest, a large proportion of this corn crop did not fully mature. This creates issues all the way up the supply chain. We wanted to share some of our thoughts and concerns on the crop and help to explain what we are seeing from our side of the business. Typically, when higher moisture corn is mechanically dried it will pick up 1-2 pounds of TW. So far that is not the case with this crop. With the kernels being immature a large portion of them are breaking up running through equipment, leading to lower TW post drying. This is a large concern for us as the elevator. Another issue we are seeing is local availability of propane. We pre-contracted a lot of propane anticipating a wet corn crop. The wildcard was nearly all the soybean crop was wet. We had to burn a major proportion of our propane contracts on soybean drying. Contracting new propane is a challenge, with many vendors unwilling to sell more currently. This will create issues and temporary shortages that will shut dryers down this fall for farmers and elevators both. We feel that a vast majority of the corn crop will be lower test weight, and this creates a large issue with the ability to market the crop. We wanted to shed some light on how we plan to market this crop, and why test weight discounts are as high as they are right now.
When we sell corn trains to exporters on the PNW, we primarily sell #2 Yellow Corn Trains. This is the standard grade for corn trains, and a standard contract would list as follows:
Individual trains to average #2 YC and maximum 14.5% moisture
Test Weight: Trains to average 54.0, Individual car discounts
Moisture:Trains to average 14.5% or less, individual car discounts, cars subject to rejection of 15.0% moisture
Damage:Trains to average 5.0% or less, individual car discounts
Heat Damage:Trains to average 0.2% or less, individual car discounts
BCFM: Trains to average 3.0% or less, induvial car discounts, cars subject to rejections over6.0%
Musty/Sour: Cars subject to rejection
If we cannot load trains to those specifications the train would 1) either be rejected and unloaded, or 2) sold at a steep discount and shipped elsewhere, most likely a domestic ethanol or feed market. Global buyers of corn source the cheapest and highest quality grain they can find. If we cannot meet spec, they will source their grain elsewhere (South America, etc.)At times global buyers will buy #3 YC corn trains. These would allow test weights to average 53 lbs, and the “discount” on that corn sale might be 5-10c, vs. a #2 YC corn train sale. If we were seeing test weights average 53-54 pounds like we did last year we would be less concerned. However, as of now it is a very real possibility that this crop taken off in November and December would average 50-51 pounds. If that is the case we will have to sell this corn into markets we typically don’t sell too. It is possible to ship our corn down to large feedlots in Texas, or domestic ethanol and starch plants in the Midwest/Eastern Corn Belt. But in order to do that we would be shipping trains across the heart of the corn belt(see graphic below). Economics does simply not allow us to sell corn and ship it across the corn belt for any similar type of margin as doing so the PNW. An ethanol plant in Indiana is not going to pay us more for our corn, if they can source it cheaper and closer, especially if our corn is subpar quality.
3 Bil bu still in the field
Cash premiums as much as 40 cents higher than year ago
Futures discounted due to trade policy and impeachment woes
If we get a trade deal, futures markets could be facing a significant price re-alignment with cash
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