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Corn merchants 'step up sales' as US supply hopes grow

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Corn merchants are stepping up forward marketing of the grain, as US supply fears grow, although lower prices are prompting farmers to opt for less expensive seed, Green Plains said.

The ethanol producer - for which low corn prices boost margin prospects - acknowledged relatively high values of the grain currently on US cash markets, which it attributed to growers focusing on spring sowings rather than crop sales.

"The corn basis has definitely firmed up here in the last several weeks," Todd Becker, the Green Plains chief executive, said, highlighting that the firmness in the basis, the gap between futures and cash markets, had "started to have an impact" on margins for corn-derived ethanol.

"We are going to have to wait for him [the farmer] to come out of the field and spoonfeed us some corn."

'Commercials selling early'

However, in an "interesting" twist, supplies for the October-to-December quarter were proving unusually easy to come by.

"We are starting to see commercial hedgers sell us corn at more historical levels earlier in the season," Mr Becker said.

"So we have started to see in places in Iowa at the $0.25-0.35-a bushel under [futures] numbers, which we typically wouldn't see this early, where commercial hedgers are starting to let go of some corn."

'Going to have to sell'

The trend comes amid expectations of a raised end-year US corn inventories for 2014-15.

"The farmer is in charge of the US corn basis today, but they are going to carry in a lot of stocks" to next season, Mr Becker said.

When inventories at the end of 2014-15 "could be pushing 2bn bushels, the farmer is going to have to let go of some corn".

While the US Department of Agriculture estimates US corn stocks at the close of this season at 1.83bn bushels, some analysts foresee a bigger figure, citing factors such as a recent pullback in US ethanol production and softness in feed demand.

'Great, clear weather to plant'

Mr Becker also highlighted the spell of good weather for US corn sowings, which have spurred many commentators to talk of increased acreage and the potential for higher yields.

"In the west [Corn Belt] this is great, clear weather to plant corn. So let's not complain too much about no rain.

"Let's get the crop planted in a big way and then start to watch the forecasts after that."

"In the east [Corn Belt], I think they are off to a solid start.

"We need to make up a little bit in the South West - we are behind there. But I think overall it looks like we have a clear window."

'Another good crop year'

Farmers may be, in the face of lower corn prices, cutting back on seed costs and opting for cheaper varieties.

"From what we are hearing, he [the grower] is not buying the most expensive hybrid," Mr Becker said.

"But… overall our view is the farmer is going to get into the field, and he's going to plant the corn

"We expect that under normal growing conditions, we are going to have another good crop year with not a big draw" on inventories, boding well for ethanol production margins.

DDGs vs soymeal

Meanwhile, the group was sanguine on prices of distillers' grains (DDGs), the high protein feed ingredient manufactured as a byproduct of ethanol output, despite their relatively high price compared with corn itself.

Compared with soymeal, the most popular protein feed ingredient, DDGs "are still a cheaper per-unit cost", he said.

Indeed, in theory "you can still go up 35% from these prices" for DDGs, to judge by comparison soymeal values.


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