The basis on both corn and soybeans has widened over the past couple of months, depressing cash prices on both corn and soybeans. But the basis outlook moving forward—while not as positive as most years—is expected to improve into spring and summer. About 90% of cash prices is the futures’ value and 10% is basis.
Two big factors, one negative and one positive, will shape basis for corn and soybean prices this spring and summer, but they likely will offset one another to some extent. “Farmers have sold a lot of grain over the past two months. Cash grain will be hard to fill moving forward,” says Chad Hart, agricultural economist at Iowa State University. The basis will need to improve, he says, to entice growers to sell their corn and soybean holdings.
As of Dec. 1, growers were holding 6.3 billion bushels of corn on farm, compared with 7.4 billion a year earlier. Soybean producers were holding 1.09 billion bushels of soybeans, compared with 1.23 billion a year earlier. “That was two months ago. A lot of corn and soybeans moved into the market since then,” says Hart. “Basis will recover as we go deeper into the year.”
At the same time, though, higher diesel fuel prices, one of the main drivers of basis should continue to dampen cash prices. For the week ending Jan. 31, average U.S. on-highway diesel prices of $3.44, were 66 cents higher than a year ago, according to the U.S. Energy Information Administration. Hart expects higher diesel prices to widen the basis for both corn and soybeans by about 10 cents or so, from the current 40 to 60 cents per bushel under the nearby futures price to 50 to 80 cents under at various points in Iowa.
The reluctance of growers to let go of on-farm stocks, however, should work against increasing diesel fuel prices, or at least reduce the loss from higher transportation costs. Hart expects basis this spring to improve to 35 or 40 cents under the nearby futures price. Compared to historical averages of 20 to 25 cents under in Iowa, the basis outlook may not look all that great at first glance. “But I can handle a weak basis if I can get a $6 cash price for corn,” he adds.
