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Corn basis is looking good

Agriculture.com Staff 02/21/2006 @ 12:52pm

Corn basis is looking good this week. Basis gained ground despite increasing corn futures prices, moving cash prices 7 to 10 cents higher for many producers. The largest increases in basis were seen along the river in Southern Illinois and Missouri.

These markets have benefited from lower barge rates this week. Average rates fell by roughly 10% making shipments to the Gulf look particularly attractive. Pockets of weakness were seen along the East Coast. These markets have seen basis rally recently and may now be experiencing a bit of a correction. Good portions of Illinois, Iowa and Missouri were up nearly 2 cents.

The recent increase in corn basis is not overly surprising. Basis historically tends to move higher in February after a period of weakness or stagnation in January.

The major merchandisers appear to have increasing confidence in the cash market. The average basis across the Cargill elevators that we follow increased by 4 cents. Similar basis increases, ranging from 3 to 4 cents, were seen at ADM, Bunge and Consolidated Grain and Barge. These increases in basis come on top of a 5 cent gain in futures prices.

A tightening of commercial stocks and limited cash sales is also strengthening basis. Cash sales have been slowing since the new year, with sales only peaking as producers take advantage of the occasional futures rally. Charting corn deliveries into several key markets, it is apparent that recent cash sales are moving lower. Last week's shipments were considerably below last year's numbers at this time.

If farmers continue to hold their corn, we may see basis move even higher. The recent 7 to 10 cent increase in corn prices will likely stimulate cash sales in the coming week. However, the most recent price rallies have had less and less of an effect on cash sales. Farmers appear to be moving into a wait and see strategy, and it may take a large increase in prices before cash sales pick up speed again. At this point in time, if you are looking to lock in your basis, it may pay to go ahead and wait.

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Corn basis is looking good this week. Basis gained ground despite increasing corn futures prices, moving cash prices 7 to 10 cents higher for many producers. The largest increases in basis were seen along the river in Southern Illinois and Missouri.

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