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18 Jun 2008 09:13 EDT DJ US Cash Grain Outlook: Floods Soak Interior Basis
By Gary Wulf
Of DOW JONES NEWSWIRES
CENTRAL CITY, Neb. (Dow Jones)--Cash basis was in retreat throughout nearly all sectors of the U.S. grain market Wednesday, undercut by Midwestern floods, which have disrupted normal transportation networks, and growing harvest pressure on winter wheat.
"Freight bottlenecks and higher costs put grain movements on hold and have caused basis markets to weaken," said Kevin McNew of CashGrainBids.com. "With the brunt of the flooding issues still in front of us, basis levels should continue to come under pressure."
The Burlington Northern Santa Fe Railroad said flooding has caused major delays on three routes in Iowa and lines along the Mississippi River, as far south as Memphis, warning that normal traffic won't resume until rivers crest.
"In addition, barge rates have catapulted higher as well," added McNew. "Over the last week, barge (freight) rates along the Illinois and Mississippi River regions are up 8 cents a bushel, while rates on the Ohio River jumped 18 cents a bushel."
Nearly 300 miles of the mid-Mississippi River are currently closed by flooding, which has greatly restricted the transport of interior grain to lucrative export markets at the Louisiana Gulf.
"The Corps of Engineers said that it will be at least two weeks before locks #13-25 are all open," said Country Hedging analyst Joel Fitch.
With interior demand damped, domestic basis had weakened by an average of 3/4 cent per bushel for corn/soybeans and 1 cent for grain sorghum Wednesday.
The most dramatic basis declines - averaging close to 4 cents a bushel - occurred in the hard/soft red winter wheat markets however, as newly harvested bushels continued to flow into the cash pipeline. The USDA Tuesday reported commercial inventories of U.S. wheat increased by nearly 3% during the past week.
Even so, spring wheat successfully sidestepped the bearish basis trend Wednesday, registering an average increase of 1/4 cent across the U.S., which was largely attributed to slow country movement.
"The cash (HRS) market closed higher again (Tuesday in Minneapolis) with only 10 cars for sale," noted Benson Quinn Commodities analyst Ryan Kelbrants.
Fresh export demand from Japan also helped to support spring wheat basis, and prop up spot HRS futures, which closed about 2-6 cents higher overnight. Although soybean futures were nearly unchanged, Globex gains of around 1-3 cents were also registered by cash contracts of corn and winter wheat.
"Continued concerns about excessively wet conditions in the Midwest and flooding are supporting the market," said Doane Agricultural Services.
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