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Exceptional Markets Led by Strong Basis

October 28, 2011
By: Sara Schafer, Farm Journal Media Business and Crops Editor
 
 

A rare situation is happening across farm country this harvest season.


Overall, yield data is coming in at expected, somewhat average levels this fall, but not all areas are seeing sufficient yields. “We have regional problems,” says Bob Utterback, president of Utterback Marketing and Farm Journal economist.  
 
He says in the West, yields are far below normal, Ohio farmers faced planting issues in the spring that were unfavorable for crop growth and in areas such as Texas, yields were almost non-existent.
 
“In Texas, they just didn’t really have a crop and they have a lot of livestock so they are demanding inventory very aggressively before the bin door shuts,” he says. “They are really trying to push basis levels to get control of the cash corn.”
 
All of these regional issues are creating an exceptional market environment this fall – extremely strong basis. Utterback says the last time he saw a counter-seasonal move like this one was in 1987.
 
Listen in to Utterback’s full commentary:

 

So, how should you react to this situation?

 
He says basis is the difference between your cash price and the Chicago Board of Trade price.
“Traditionally at harvest, basis is wide because there’s a lot of supply. There’s a saying in the commercial industry: When basis is wide, you want to own the product. When basis is tight, you want to sell the product.”
 
Utterback is concerned that when the cash flow sales happen in January, February and March, the basis will widen and the flat prices break. “That would really spook farmers out of their inventory.”
 
An old saying in the market world, he says, is: You can’t really have a bull market until farmers don’t have the inventory.
 
For More Information
Visit AgWeb’s Market Center.
 
Read Utterback’s Outlook Today blog and read his latest columns in Farm Journal.

 

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