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Cash market forward carry begins to tighten

Agriculture.com Staff 02/06/2008 @ 12:02pm

Corn and bean basis posted modest gains this week as both were up an average of 2 cents a bushel across the U.S. Basis levels continue to hold up while the futures market climbs, but forward carry premiums are shrinking at the same time.

In corn, forward cash carry premiums offer limited rewards in comparison to the cost of storage. The table below shows the average carry by state being offered by grain elevators. For example, in Iowa, the average market carry for storing corn from now until the start of April is 11 cents a bushel.

For comparison, the last row shows the cost assuming 5 cents per month. States in the Western Cornbelt and Plains are offering lower carry. In fact, in Nebraska there are no opportunities to store grain at a profit based on average carry. Eastern Cornbelt markets are offering better rewards. In Ohio, storing until June will pay 28 cents more than spot delivery. With a cost of storing to June of 20 cents that yields an 8-cent profit.

For soybeans, higher storage costs are not necessarily being offset by higher carry. However, there are some generous rewards for storing soybeans in some areas. Assuming 8 cents-per-month to store, the average carry in Ohio to store until June is 48 cents which yields a 16-cent profit once storage costs are deducted.

With the futures market showing few signs of pulling significantly lower, look for carry to continue to diminish. However, opportunities to lock in storage returns still exist but the time is growing short to lock in returns above storage costs.

Corn and bean basis posted modest gains this week as both were up an average of 2 cents a bushel across the U.S. Basis levels continue to hold up while the futures market climbs, but forward carry premiums are shrinking at the same time.

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