Corn basis at -45¢ and soybeans in the -90¢ area have a lot of growers up in arms—and wondering if cash prices have lost all relationship to futures. That is not the case, based on analysis by Joe Victor at Allendale Inc., in McHenry, Ill. "Corn futures are roughly 3.5 times of their historical average and cash has increased about 3 times. Historical basis at this time of year is about 3.3 times lower than historically, so it isn't really out of line.”
Furthermore, plotting a 5-year average of central Illinois prices shows a seasonal pattern the 2007-08 patterns had the same seasonal trends—just more exaggerated. "Corn basis typically is weakest in late-September-October, as harvest begins, and strongest in November-December, as futures push lower due to harvest,” he says. "Last year, November-December basis matched the 5-year seasonal level. We expect the seasonal pattern to prevail this year and would look to sell the basis postharvest.”
Similarly, soybeans' cash prices typically peak in December or June-July. "Last year's fall low exceeded what you would expect given the change in futures price,” says Victor. "The anomaly was due to increases in the cost of transportation. Basis then followed the seasonal pattern, but experienced an extreme, $1, rally from March into April on political problems as the South American crop was coming out of the fields.
"This fall, we expect soybean basis appreciation into October-November and again next spring to closer-to-normal levels than currently seen.”