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21 Oct 2008 14:29 EST US Cash Grain Review: Small Gain In Commercial Inventories
By Gary Wulf
Of DOW JONES NEWSWIRES
CENTRAL CITY, Neb. (Dow Jones)--Commercial inventories of U.S. cash grain are increasing at only a modest pace - even at the near-peak of fall harvest - leaving elevators, ports, warehouses and terminals surveyed by the U.S. Department of Agriculture filled to 59% of total holding capacity as of Tuesday, up from 58% last week.
Deliveries of new-crop grain boosted stocks in storage by 3.7 million bushels of corn and 12.7 milllion bushels of soybeans, but the department added that visible supplies also declined by 7.5 million bushels in wheat and 1.5 million bushels of grain sorghum.
"As harvest progresses across the Corn Belt, a distinctive trend is being noted," said Iowa commodity-trade advisor Karl Setzer. "The only grain that is flowing into the supply line at the present time is what was forward-contracted. Producers are putting as much grain as possible into storage, in hopes of higher values later in the marketing year. Soybeans are benefiting the most from this, as adequate storage and lower than normal yields are making it nearly impossible to entice movement of that grain."
Consequently, national-average interior soybean basis had strengthened by 3 1/2 cents entering Tuesday's trading session.
"Although soybean harvest (67% complete) as not as far behind as corn harvest is (29% complete), the sell-off on the futures market is likely limiting cash sales by farmers," said basis expert Kevin McNew of Cash Grain Bids Inc.
With cash contracts closing more than 20 cents lower again Tuesday, farm-level soybean prices stand about 45% lower than their early-July record high. Farmgate corn/wheat prices are also off some 60-70% from unprecedented peaks visited earlier this year, following additional declines of 8-14 cents on Tuesday.
Midwestern terminals polled by the CBOT last week reported a 50% decline in cash receipts of corn and soybeans, compared with a year earlier.
"Basis is firming in some areas, with farmers not selling any new-crop beans, as prices have fell dramatically," said market analyst Alan Brugler.
Soybean export basis also jumped 5-7 cents at the Louisiana Gulf Tuesday, although those gains were overshadowed by a 15 cent per bushel explosion in CIF soft red winter wheat markets.
"Soft wheat barge basis levels are now $2 off the lows," observed Linn Group analyst Roy Huckabay. "It is not unusual for soft wheat basis levels to firm during corn and bean harvest as attention turns away from trading wheat and programs do not make room for shipping wheat, while all the traffic is corn and beans."
A sharp reduction in marine freight rates is also providing strong support for domestic and export basis.
"We suspect that [the decline in ocean transportation costs] shall be a strong aid to grain prices over the course of the next several days and weeks, for where freight costs had been egregiously high and thus a delimiting factor on export trade, they are now inordinately weak and are a beneficial factor instead...sufficient at least to offset the strength of the US dollar," said market analyst Dennis Gartman.
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