Basis Trends Leave Farmers in the Middle

17:00PM Sep 17, 2015

If you want to know where basis is going this fall, just look at the latest prices for corn and soybeans.

“We have a lot of grain in the bin that is unpriced,” explains Edward Usset, a grain marketing specialist at the University of Minnesota. “If we get a strong rally, then people will sell the grain and keep basis on the defensive. If prices remain low, we’ll see some real tight holding in the bin, and it will artificially boost the basis. I think the basis tone is going to be set by the board this fall.”

That’s a big difference from 2014, when a rail capacity crisis forced grain shipments to wait, wait, and wait in favor of oil. In Minnesota alone, farmers lost an estimated $100 million last fall due to rail delays, and USDA (as cited in an American Farm Bureau Federation study) calculated an overall cost to farmers nationally of $570 million.

“If you want to talk about a problem that disappeared quickly, that’s it,” says Usset.

In 2015, producers face a less dramatic basis situation, but one that could prove just as frustrating financially, depending on where they farm and market their grain.

In the Upper Midwest, where farmers expect solid crops, basis is “hopelessly average,” Usset says. “It’s not particularly strong, and it’s not particularly weak.”

For growers in northwest Minnesota, that means $7.89 soybeans and $3.12 corn, both with a negative basis of 85 cents and 75 cents, respectively.

But in the corner of farm country where Minnesota, Iowa, and Wisconsin all come together, the situation is just a little bit better. Farmers there are seeing 40 to 60 cents under for corn and soybeans, with slightly stronger numbers for old-crop soybeans (38 cents under at the Farmers Coop in Spring Grove, Minn.)  Cash prices are better too, with corn approaching $3.50 and soybeans in the low to mid-$8 range.

The spread in Minnesota illustrates the regional basis differences that some people expect to see in the weeks ahead.

“This year, we’re going to have plentiful supplies (of corn and soybeans) in the western Corn Belt, so we’ll probably see some areas over there that have relatively weak basis,” says Brian Grete, editor of Pro Farmer in Cedar Falls, Iowa.

Grete predicts a very different situation in the East, thanks to heavy rains and flooding that qualified numerous counties in Indiana and Illinois as federal disaster areas. “We’re talking about a deficit (of grain in an) area that has historically exported more than it has used domestically,” he says. “I think we’re probably going to see some basis strength over there. If you happen to have a good crop over there in the eastern Corn Belt, you should be able to capitalize on basis.”

Just look at Ohio, where 21% of the corn crop and 22% of the soybean crop was rated “very poor to poor” in early September, according to USDA’s Crop Progress report. (In contrast, just 2% of corn and 4% of soybeans in Minnesota was described as “very poor to poor” in that same report.)

Against that backdrop, farmers near Bowling Green could find elevators in September offering cash soybean prices in the high $8s, with a zero or small (10 cents under) negative basis. Corn, too, is pushing $4, with several elevators offering a negative basis of 10 cents or fewer on new- and old-crop corn.  

That dynamic is “something to keep in mind as you formulate your marketing decisions moving forward for the 2015/16 marketing year and probably even 2016/17,” says Grete. “As supplies dwindle in the eastern Corn Belt,” elevators may have to boost their basis to encourage farmer sales—and end up drawing corn and soybeans from west to east to meet buyer demand.

That could certainly help farmers, just as long as they don’t lose sight of the big picture as they market their grain this harvest season. “Dwelling on basis and not on market direction can be a losing situation,” says Jerry Gulke, president of the Gulke Group in Chicago and a farmer in Illinois. “Do you want to lose a dime in worrying about basis while watching corn go up 18 cents?”


Make the Most of Basis

  1. Know the basis history in your area. How do current levels compare to historical trends? Is basis likely to improve or weaken in the months ahead? If possible, time your sales for the periods when basis is stronger.
  2. If basis in your area is average, watch the markets and be prepared to move if prices spike. “If you get a price you like, sell some grain,” says Edward Usset, a grain marketing specialist at the University of Minnesota. “Too many people have watched the rallies this year come and go.”
  3. If the market rallies and brings basis along for the ride, act quickly; the boost may not last for long if farmers finally open up their grain bins and start selling.
  4. It’s OK to store grain and wait for a better price, but you need to watch your exposure, monitor your remaining storage capacity, and maintain realistic financial expectations. Usset tells the story of a farmer who showed up at his local elevator to make a pre-harvest sale not because of attractive prices, strong basis, or an established marketing plan. Instead, the farmer had simply run out of space in his bins—and had to sell 200,000 bushels of corn to make room for the new crop. “Was it priced corn? Of course not,” Usset says. “This time of year, you get people who are painted into a corner.” You don’t want space considerations or cash flow to force you into making a major unprofitable—and unplanned—sale. 


What sort of basis trends are you seeing in your area? Let us know in the comments.