Wide Basis Expected this Harvest

September 24, 2016 02:21 AM

Keep your marketing plan flexible for any opportunity

While the precise yield forecasts for corn and soybeans are under discussion, one detail is for sure: U.S. farmers will produce bumper crops of corn and soybeans this year.

That will likely 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,” says Brian Grete, Pro Farmer editor. “The expectation is there are going to be big crops, and with bigger crops, you get a wider basis.”

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

The basis situation could be especially hard in the Southern Plains, “where they have wheat piled up,” Grete says. “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, Kan., 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¢, 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. In early September, at the Fosston Co-op in Fosston, Minn., the cash price for corn was $2.56, with a negative 70¢ 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 a wide basis this fall. “The basis is going to be huge,” says Oelke, who works with Minnesota and North Dakota farmers. “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 later fall.

Unfortunately, there might 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, Oelke says. Thanks to spring’s soybean rally and drought talk, many growers held 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, suggests the same. Nearly 73% of attendees said farmers in their area had sold 20% or less of their 2016 corn crop.

If prices and basis weakens, those growers might 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,” Grete says.

And if the elevators in your area are full? Grete suggests contacting a feedlot and selling grain directly. 

Those are deals you have to broker yourself,” he says. “But you take out the elevator, 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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