The first and biggest reason is because we are looking at a big crop for the 13-14 crop year. The USDA estimates we are going to have a 1.456 billion bushel carryout. That is a lot of corn that needs to find a home.
The next reason is because Burlington Northern freight is an absolute nightmare. The BN has all their focus on the Bakken up in North Dakota. Oil is being extracted out of the shale in the ground and it needs to be shipped. I recently attended a seminar that discussed the freight issue and the speaker said that this has turned into a billion dollar revenue stream for the BN. Here’s an example of how focused the BN is on making the big bucks. There’s a grain elevator near the Bakken. They loaded a grain shuttle and it sat there for seven days before it was pulled away. In those seven days, twenty-eight oil shuttles went by.The oil project has driven grain car prices to range from $4,000 to $5,000 a car. That doesn’t even include the freight it takes to get the shuttle to the destination.
The high cost of cars hasn’t allowed us to execute any shuttles out of Tamora. We’ve had to rely heavily on local ethanol plants to get our grain moved. This has caused lines at the plants to be extremely long. Now we are starting to see the effects that is having. Most of the area ethanol plants are said to have coverage through May. Some are even believed to have coverage through July. This is why we have seen basis weaken so much in the last month or so.
It scares me to think where basis could end up for both old crop and new crop. If you would’ve asked me in late January or early February, I would’ve said we had the potential for a basis spike in late April or early May to spark some movement while farmers are in the field. Now I’m under the impression we won’t see a basis spike the rest of the old crop year (as long as we don’t see the bottom fall out of the futures board for some reason). Here’s why. As I said before, ethanol plants are believed to have good coverage into the next few months. There is still a lot of corn that still needs to be moved. You mix that with the good coverage and inability to export corn off the BN line and we have quite the issue.
I could also see our new crop basis weakening because of how large the 13-14 carryout is. There won’t be huge demand for corn coming out of the field because of the estimated 1.456 billion bushels destinations will have to work with in the early parts of the 14-15 year that was brought across from 13-14. I’m not saying you have to do something today. It is just something you need to be aware of and keep an eye on.