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Better basis conditions expected

Agriculture.com Staff 07/09/2009 @ 10:53am

The last year has been one of improving basis conditions. After the energy market tumbled and the economy tanked over the past year, transportation costs -- a major component in grain basis -- begun to fall.

In the case of corn, this has translated into a 30-cent improvement in basis levels over the last twelve-month period. Weaker barge rates have helped raise basis levels, especially in the Illinois and Ohio River regions were barge rates are 40 cents lower in the last 6 months (as compared to the Mississippi River which had about a 20-cent decline in barge rates). This has benefited farmers in the eastern Corn Belt region.

In the western Corn Belt, basis levels are higher over the last year, the strength has been tempered by sluggish ethanol buyers. That may turn around a bit in 2009/10 as we have new ownership of some bankrupt plants, energy prices move higher and corn prices come down.

However, for 2009/10, western Corn Belt corn acres were up more so than eastern Corn Belt according to USDA's June 30 Acreage Report. Iowa, Nebraska and South Dakota (which account for about a third of the U.S. corn crop), are pegged to have 5.4% more acres in 2009 over 2008, while the entire US corn acreage is up only 1.8%. This will likely keep harvest basis levels a bit more defensive in the West as compared to the East.

Corn basis should continue to hold firm for the remainder of the old-crop season and be favorable in the new-crop season. For soybeans, the next few months should be a dramatic shift from the tight old-crop supply situation and strong basis to more ample new-crop supplies and weaker basis.

The last year has been one of improving basis conditions. After the energy market tumbled and the economy tanked over the past year, transportation costs -- a major component in grain basis -- begun to fall.

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