Wide Basis Expected This Harvest

September 7, 2016 06:00 AM
elevator grain elevator

While the precise yield forecasts for corn and soybeans are under discussion, one important detail appears to be settled: U.S. farmers will produce bumper crops of corn and soybeans.

That likely will translate into big basis differences between cash grain prices and the nearby futures price on the Chicago Board of Trade in many areas, which could be financially challenging for farmers who want or need to sell grain this fall.

“Basis is going to be wide based on where we sit now,” said Brian Grete, editor of Pro Farmer. “The expectation is that there are going to be big crops, and with bigger crops, you get a wider basis.”

Pro Farmer recently estimated the U.S. corn yield at 170.1 bushels per acre and soybeans at 49.3 bushels per acre, based on the results of the 2016 Pro Farmer Midwest Crop Tour and analysis of other factors affecting crop production.

The basis situation could be especially hard in the Southern Plains, “where they already have all that wheat piling up,” said Grete. “Not only is wheat going to compete with corn on the feed side, which will hurt the basis for corn, but they’re going to have a storage issue.”

In Madison, Kansas, for example, the Ag Choice Co-op offered a cash price of $2.76 for corn (new and old-crop) with a negative basis of 53 cents, along with a cash wheat (HRW) price of $2.93 and a negative basis of $1.20.

Farmers in the northern Corn Belt are also seeing some painfully weak basis on their crops right now. At the Fosston Co-op in Fosston, Minn., the cash price for corn is $2.56, with a negative 70 –cent basis. “August and September are the worst basis times of the year,” says Bret Oelke of Innovus Agra in Minnesota. “It’s a function of supply. There is not enough carry in the futures market.”

Like Grete, Oelke expects to see a wide basis this fall in many areas. “The basis is going to be huge,” said Oelke, who works with many farmers in Minnesota and North Dakota. “If I have farmers who have to deliver corn at harvest, I’m encouraging them to lock in basis right now” and avoid the dual punishment of falling prices and even weaker basis this fall.

Unfortunately, there may be a lot of farmers who will be delivering corn this fall. “There are lot of people who have very little work done” in terms of grain sales, says Oelke, thanks to last spring’s soybean rally and drought talk that caused many growers to hold onto their grain in hopes of higher prices, only to be disappointed this summer.

“You can’t get distracted by the noise,” Oelke warns. “We saw a lot of people with really good marketing plans that didn’t get implemented.”

An informal poll taken during an August webinar by Arlan Suderman, chief commodities economist for INTL FCStone, suggested the same. Nearly 73% of attendees said that farmers in their area had sold 20% or less of their 2016 corn crop.

If prices and basis weakens, those growers may find themselves taking a hit, depending on their financial pressures. “If you need the money for cash-flow purposes, obviously you have to move that grain,” says Grete.

And if the elevators in your area are full? Grete suggests contacting a feedlot and selling your grain to them directly. “Those are the types of deals you have to broker yourself,” he says. “But you take out the elevator, and so (the feedlots) are paying you less than they’d pay the elevator and you’re getting more than you would get from an elevator.”

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