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Veteran Advisor

Marketing, OK, I'll bit, ...

The Board price for May corn is 3.12, Dec corn is 3.33, a 21 cent carry.  If the corn crop is any good at all, that carry will disappear by Nov and with a projected carryout of 3-4 billion bushel there's no reason for it not to.

   A survey of Iowa cash prices for Oct is in the range of 2.80. That's a minus 53 cent basis, that basis will undoubtedly widen by fall to north of 60 cents.    So 3.12 minus 60 cents looks like a 2.52 cash price.

  Who's got a better idea?

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Veteran Advisor

Re: Hurrah, gasoline consumption .....

Hurrah, gasoline consumption jumped up to a whopping 5.83 M barrels per day up from 5.2 M last week. 

The good news for ethanol is stocks decline slightly but the bad news, ethanol production continues to decline to 537,000 barrels per day.

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Honored Advisor

Re: Marketing, OK, I'll bit, ...

I`m in a poor basis part of Iowa..not as bad as the DeKodies, but the big crops we raise and our distance from Chicago or the "river" it`s a poor basis.   So, we are $2.75 cash corn right now and $2.98 new crop.  "3 billion 2021 carryover, shuttered ethanol plants, packing plant shutdowns, 5-6 yrs in row of record world acres & yields, upside down oil prices"  ..we all know all of that, yet grains are hanging in pre 2010 levels.

In the current fuel price area, ethanol plants can only pay $1.90 for corn to breakeven, yet we`re a buck above that..somebody knows sumthin` or why ain`t we $1.90? 

Advisors I hear say "don`t do anything, corn is below C.O.P it needs to be $4 dec to scale up sales".  The question is what would drive Dec above $4 and if that event occured, would you pull the trigger?

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Senior Advisor

Re: Marketing, OK, I'll bit, ...

BA, I got a question. As we raise all non GMO corn we sell none to the ethanol plants. I got to wondering what happens to the contracts when an ethanol plant shuts down. Do they leave themselves an "out"?

Once we had a white corn contract and when their Japanese buyer backed out of them the elevator backed out on us. It was right there in the fine print. We fed what we could and ended up hauling the rest to the river where they blended it in at 3% foreign material.

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Senior Advisor

Re: Marketing, OK, I'll bit, ...

You’d assume that the corn that’s been purchased has been laid off with ethanol sales- otherwise they wouldn’t be in business long.

And I assume there’s enough of that to keep the industry limping through the limited demand for some time.

I’ll stand by my guess that we’ll get back to fuel use of 80 pct of normal but that doesn’t fill the huge hole left behind or feed even a skinny bull.

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Honored Advisor

Re: Marketing, OK, I'll bit, ...

Hey 3020, these ethanol contracts and I suppose feedmill or coop contracts too have some fine print that if it`s to deliver $4 corn and corn off the combine at <$2 there will be some Force Majeure...or do it the hard way and they`d go Chapter 11.

There are lessons to be studied from Verasun`s bankruptcy in the midst of the ethanol boom.  It wasn`t always gumdrops and lollipops.  And Stamp farms went broke when corn was $7 and he was Top Producer`s BigShot of the Year. 

https://en.wikipedia.org/wiki/VeraSun_Energy  

snip

VeraSun's financial difficulties were the result of the company hedging its corn consumption with an OTC derivative known as an accumulator. The derivative contract works as such: VeraSun locks in their procurement of corn at a discount to current market prices. However, if the market moves below this discounted level then VeraSun was required to take in twice as much as it was normally contracted to. This results in VeraSun taking twice as much grain as they need at a higher price than if they bought on the open market. More over, these accumulators typically have a stipulation where if the price of corn were to rise too high relative to the discounted level then the contract would knock out and no longer be in effect. Every week these conditions are checked and the appropriate amount of corn is purchased by VeraSun at the appropriate price. What happened to Verasun was that the price of corn fell drastically causing them to buy twice as much corn as they need at what was then a relatively high price. On top of this the price of ethanol fell as well, this caused their crushing margin to go negative.[5]

VeraSun ended up selling seven of the plants to Valero Energy Corporation, and the rest to other companies in 2009.[6]

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Veteran Advisor

Re: "Corn above $4, would you pull the trigger?"

Well, there's an easy way to find out, offer to buy corn for $4, and see if any trucks show up at your door.

  I'm betting there will be.

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Veteran Advisor

Re: Ah! yes, the good old "accumulator" trick", it's been the ...

Ah! yes, the good old "accumulator" trick, it's been the ruin of many a poor grain farmer over the years.

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