The Grain Hedge Team provides a macro-focused daily view of the world’s grain markets. Kevin McNew received a bachelor’s degree from Oklahoma State University and his master’s and Ph.D. degrees in Economics from North Carolina State University. He spent 10 years as a Professor of Economics with the University of Maryland and Montana State University focusing on commodity markets and is widely regarded for his ability to boil-down complex economic situations into easy-to-understand concepts for applied life.
Futures Crumble, Bean Basis Follows Suit
Oct 01, 2008
Futures markets were limit down on Monday, taking its cue from the implosion in the financial sector and a lack of supply-side worries in the grain sector. Although harvest is behind schedule for corn and beans (9% this yr vs 21% 5-yr avg), an unusually mild fall weather pattern has limited the risk of early frost damage.
In the cash markets, some areas are seeing sharp rallies in basis as harvest supplies may still be a few weeks away. Other areas are starting to turn seasonally lower with harvest hitting stride.
Corn basis was stronger in parts of Iowa as feed users and some ethanol plants have come up short before harvest. Key players in the region are up 10 to 20 cents a bushel in the past few weeks. Along the river system, basis was on the defensive as barge rates were up for shipments to the Gulf.
In soybeans, basis levels starting their slide into harvest as looses of 20 to 30 cents a bushel were fairly common. The Eastern Cornbelt, which is more on par with normal harvest pace, has seen basis levels widen 30 cents or more.
With the brunt of harvest still well in front of us over the next 3 weeks, more pressure on basis is expected. A further dilemma is what to do with the crop at harvest. Western Cornbelt farmers face a tough chore trying to find ample storage returns in current forward contract offerings. On the East, forward carry is better, but still offers limited rewards with high storage costs facing farmers.