Last year's U.S. drought, the worst since the Dust Bowl, is delivering its final sting to major grains buyers like Archer Daniels Midland, Bunge Ltd and Cargill Inc, who are paying record-high premiums for dwindling supplies of last year's crops.
Premiums at the moment are as high as $1.75 a bushel above benchmark futures prices on the Chicago Board of Trade, which have been depressed by signs of a record harvest this coming autumn. The most active agriculture contract, December corn , hit a two-year low last week near $4.90 a bushel.
The residual effect of last year's drought has triggered an unprecedented bidding war for immediate supplies. Ethanol plants, soy processors and livestock farmers, unwilling to pay the lofty premiums, are cutting operations instead.
Making matters worse, a soggy spring delayed plantings of soybeans and corn, pushing back the likely arrival of new supplies by several weeks. The supply squeeze is set to peak next month when premiums could shatter existing record levels, inflicting even more pain on grain handlers.
"We will be on fumes come mid-August," said Joe Christopher, a grain buyer at the Crossroads Co-Op in Sidney, Nebraska, referring to scarce supplies of grain in a state that is still engulfed in moderate to extreme drought.
The biggest processors need hundreds deliveries each week of semi-trucks full of corn and soybeans, and not all shipments can be bought in advance.
At the trading floor in Chicago, corn futures have tumbled 16 percent since hitting a record last August, with nearby September corn settling on Tuesday at $5.51-3/4 per bushel. New-crop December dipped below $5 a bushel last week for the first time in 2-1/2 years.
However in Iowa, long the king of corn-growing states, a major processor owned by Cargill Inc was willing to pay $7 or more for bushels delivered this week. The price difference this month between existing grain and grain to be harvested later was the widest ever.
The corn "basis" in Cedar Rapids, Iowa, is a record-high $1.75 above futures, according to Reuters data, up sevenfold from 25 cents above futures a year ago.
The record gap reflects the clash between tight short-term supplies and expectations that U.S. farmers this year will harvest the largest corn and soy crops ever.
Soybeans are even tighter than corn, with U.S. stockpiles expected to fall to a nine-year low of 125 million bushels by the end of August. That amount represents just 4 percent of total soybean usage for the year, the smallest in 48 years.