Weekly Insights: Cash Corn Spreads between Illinois and Center Gulf
Cash Corn Spreads between Illinois and Center Gulf
Illinois cash corn price is strong versus the future corn price, but when compared to the Gulf cash corn price, the Illinois cash corn price is weaker than in previous years. The difference between the Illinois cash corn price and Gulf cash corn price is the margin for players in the supply chain. Since 2004, on only two occasions have the March cash price spread between Illinois and the Gulf been wider than March 2021. In 2014, every reporting agency and private analyst missed the U.S. grain and soybean export forecast by an epic amount, which led to a misallocation of railroad equipment. If 2014 is thrown out as an outlier, the 2021 price spread was the widest going back to 2004 in the months of November, December, January, and February. In March, the 82-cent-per-bushel spread is within three cents of 2018 (see tables below).
Physical corn is still being bought for export and the strong cash basis in Illinois implies that corn supplies are short. We believe this is misleading because it needs to also be noted that supply chain margins, discussed above, are near record highs. If the exporters were truly desperate for more corn to ship, there is enough margin in the supply chain for them to increase bids and secure additional corn. History would suggest that a reduction in the supply chain margin from the 82 cents we saw for March 2021 to approximately 50 cents per bushel could accomplish this. Such an action would reduce the higher per-bushel profits in the supply chain, and it could also drive futures prices higher.
The key takeaway of the current situation is that interior buyers still have room to increase the bid for cash corn, which farmers and traders alike should keep in mind while analyzing other market factors in the months ahead.
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