How Basis Will Affect Crop Prices

October 2, 2015 12:00 PM

Geography and bin holdings play key roles

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

“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 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 on oil shipments out of North Dakota. In Minnesota alone, farmers lost an estimated $100 million this past fall because of rail delays. USDA has calculated the cost to farmers nationally at $570 million.

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

This year, producers face a less dramatic basis situation but one that could prove just as frustrating.

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 meant $7.89 soybeans and $3.12 corn as of mid-September with negative basis of 85¢ and 75¢, respectively.

Yet where Minnesota, Iowa and Wisconsin come together, the situation proved just a bit better: Farmers saw basis 40¢ to 60¢ under for corn and soybeans, respectively.  Cash prices were better 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.

“This year, we’re going to have plentiful supplies 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

A very different situation is likely in the East thanks to heavy rains and flooding that qualified many 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,” Grete points out. “I think we’re probably going to see some basis strength over there.”

Make Informed Sales With Basis

Know Area History. How do basis levels compare to past trends? Is basis likely to improve or weaken in the months ahead? If possible, time sales for periods when basis is stronger.

Sell The Spikes. If basis in your area is average, watch the markets and be prepared to move if prices rise. “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.”

Act With Precision. If the market rallies and brings basis along for the ride, act quickly. The boost might not last long if farmers open their bins and sell.

Guard Against Exposure. It’s OK to store grain and wait for a better price, but you need to watch exposure, monitor 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 preharvest sale simply because he had run out of space in his bins and had to sell 200,000 bu. 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.” Don’t let space constraints or cash flow force you into making a major unprofitable and unplanned sale.


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