East Central South Dakota | Ethanol will push basis to whatever level they have to, to try to get grain to move, but don't kid yourself, the delivery value is very important to the industry. Is ethanol a big enough player in the market, to participate in the "push the spread game" ? ? I can't say, but I doubt they have the capital to step into that arena.
Shuttle bid is the benchmark for the local ethanol bid in the Dakota's ethanol bid structure, why would ethanol want to pay more than needed? It is very expensive to shut down & restart a plant, but we know they only want to pay just enough to get it headed their direction vs. into your local shuttle. If they are getting absolutely no grain, then they will push their bid further. This is why an active corn export program is so important to the Dakota's and Western Minnesota for pricing opportunities on the farm gate level.
Your shuttle market bid is determined by CBOT delivery value even though it is exported to the PNW or fed in Hereford Texas. Delivery value is the benchmark, even though the boats are loaded at the PNW or the cows fed in Texas. If bid spreads get too out of line PNW vs. Gulf (difference between basis level at PNW vs. the Gulf), ships will go to the Gulf to load to cure that problem.
Again PNW basis will most likely be at a higher level than what's posted at the Gulf due to the fact that ships coming across the Pacific would incur more freight costs to travel to the Gulf.
In other words, a country closer to PNW (China) will be willing to pay more for grain loaded at PNW vs. Gulf as their freight cost is lower to the PNW. China yellow corn sales matter------to a corn farmer in the Dakota's.
Export does have a "lid" on it, it's called CBOT Delivery Value. Export values can go above delivery value, but not for very long.
Example would be, a trader is not going to pay dead freight on a vessel (not load it all the way).
CBOT Delivery Value is the ultimate benchmark on an industry wide scale. |
freight--basis--delivery points....... Very good read
