Markets Now: Basis Blasts Beans, More Pain Possible

September 7, 2018 03:29 PM
 
As Chinese demand dwindles, some farmers are seeing basis deteriorate soybean prices.

As Chinese demand dwindles, some farmers are seeing basis deteriorate soybean prices. Unfortunately, if you didn’t plan ahead and need to move beans prior to harvest, there isn’t much you can do at this point, analysts say. 

“At this point, the horse is out of the barn,” Angie Setzer of Citizens Grain LLC told U.S. Farm Report Host Tyne Morgan on this week’s Markets Now segment. “The biggest way you can manage [basis now], I joked with a customer the other day, is back your car out and start putting some beans in your garage. Which is not necessarily a recommendation of holding beans in your garage. The market structure right now is telling you, if you can hold on to soybeans, you need to hold on to soybeans.”

According to Setzer the processor market is starting to firm up as the market hopes for demand to return.

“It's really just the concern that we're going to be carrying over 485 million bushels of soybeans from old crop, we're going to have a 54 bushel per acre, if it's if it's realized, yield on 88-89 million acres of beans and no boat program that we traditionally would see out of the PNW or Toledo,” she explained. “So we have no real incentive at this point in time to pay up.”

 

 

Jeff French of Top Third Ag Marketing said soybean basis could get worse.

“Sure it can.  We don't want to say that, but if you’ve got storage at home, you’ve got to sell the carry here,” he said. “If you do that, make sure you buy something back out to May maybe even out to July. Spend 20-25 cents a bushel on bean calls because we are just a tweet away from a significant rally when they do get this trade fixed.”

The speed of harvest will have the most influence on basis, Setzer said.

“I'm telling you this from an elevator manager perspective, if it happens in three weeks, your basis is going to go out 50 cents. If it happens in in a month or longer, or if you see this rain continue, then it'll stay where it's at or slightly improve perhaps, just because you're able to move stuff out,” she explained. “Facilitating harvest is the most important thing for any elevator manager out there.”

If Chinese demand were to come back within the next month, Setzer said the market would already know about it.

“If you're going to book boats, they would need to be booked in the next two weeks at least, if not  sooner, and so your freight is not indicating that that demand is going to come out of nowhere,” she said.

French warned producers to watch basis closely and take action when opportunity arises.

“You’ve got to manage it. Track it every day and when it gets 5-10 cents better, lock it,” he advised.

Setzer added that because basis is a function of local supply and demand, it’s most important to be in contact with your elevator.

“You just need to be talking to someone that can kind of give you an indication as to what your local cash market looks like,” she said. “So, me telling you what your basis is going to do in Nebraska is just me pretending that I know what your basis is going to do. Each producer needs to be talking to their local setup and also be aware of what's out there you know, and what has to move if your elevator’s going into harvest half full. Don't expect them to pay you more for product in the next four weeks.”

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