Wheat Quality Will Determine Basis Strength

June 1, 2015 12:00 PM
Wheat Quality Will Determine Basis Strength

This year, wheat producers whose crop is in good condition likely will see stronger basis at local elevators than those with a lot of poor-quality crop created by frequent rain.

 Power Hour Noon Logo“We’ve already started to see a basis increase from this quality issue,” says Dustin Johnson, EHedger, in an interview with Clinton Griffiths on the “AgDay” Agribusiness Update segment for June 1, 2015. “This is definitely going to be the year that they’re going to be looking at quality, not quantity.”

At the same time, the bigger story for the wheat market is spreads.

“Wheat has had a couple of interesting years for spreads because of the extra storage costs for the contract, the VSR is what they call it,” Johnson explains. “Coming into May, we were at a very wide spread … . Now, flash forward to today, we’re looking at actually a narrower spread, and I think the bigger work has been done on the spreads than it has on the flat price.”

Looking ahead, the funds are likely to retain their short position.

“It’s an interesting thing looking at those [crop] ratings that didn’t change much week over week,” Johnson points out. “We’re still at 45% good to excellent, still 15% better than last year. The funds are, I think, short wheat for the long haul. They’ve already shown us that they’re not going to continue to exit the position. So I think that little blip we saw a couple weeks ago is not going to continue.”

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