Why The Soybean Basis Is Starting To Slide
Jan 21, 2011
I continue to field calls asking me about the soybean basis, and in particular why it is weakening. I am sure many there will be many out there who will want to debate my thoughts. In the simplest form, I believe that most farmers elected to sell their beans and store their corn this past year. At harvest the corn story was running wild and farmers across the country were coming up extremely short. Many had made sales earlier in the year and wanted to hold what little they had in order to be able to say they made some sales at the higher prices. In order to free up cash farmers decided to move the beans, therefore shifting ownership over to the elevators (commercials). As exports and domestic usage has slowed, the commercials are sitting on descent supplies. From what I am hearing it could take several weeks or even a couple of months before they will be able to chew through all of the inventory they are currently sitting on. With this being the case they have simply widened the basis. I also believe they are banking on the fact that Brazil and Argentine will begin to get a lion's share of the worlds export business. What will make the basis improve? Obviously an increase in domestic usage. Possibly an increase in the crush, greater demand for soybean oil due to the reinstatement of the biodiesel tax incentives. I think the most pressing reason though will be if the harvest in South America gets pushed back even further or they run into some type of production glitch. If that were to happen the world will immediately look to the US for supplies. The commercials could be caught with their pants down and forced to scramble for beans. Hence the basis would strengthen in a hurry. I think our bean exports in Feb will be higher than last year and may actually surprise some people. There are some areas in Southern China that seem to working through their inventory fairly quickly and I have also heard that beans from Brazil are now penciling at a profit for several Chinese crushers!.
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