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Corn basis rebounds while beans tumble

Agriculture.com Staff 07/17/2009 @ 7:51am

Grain futures continued to push lower this past week as cool temps and ample moisture have traders expecting large yields. Although some short-covering occurred after the sell-off, the market seems destined for lower prices unless weather conditions quickly change hot and dry.

The one glimmer of good news has been the strength in cash corn basis levels. Basis bids for spot delivery were up 3 cents bushel over the past week as farmers hold tight in the face of falling prices. Larger gains of 5 cents or better were fairly typical along the river trading system this week, as Gulf corn basis jumped 15 cents a bushel. However, barge rates have started to move up as well causing interior corn basis levels to not follow the Gulf jump as closely. Strong corn exports should keep the river system bidding for corn in the near-term, but we look for barge rates to start drifting higher and especially as we get closer to harvest.

For beans, basis levels plummeted as the market comes to term with sharply lower deferred futures prices. When July futures when off the board this week, front-month August was trading at nearly a $1 discount. which puts heavy pressure on basis levels to move lower as we approach August expiration. If you are holding cash beans on basis, this will be a painful few months and this week alone we saw basis levels fall 40 cents. Losses of 60 cents or more were common along the river as higher barge rates and weaker Gulf basis bids put extreme pressure in this region.

Looking ahead to fall crop pricing, forward carry premiums are shaping up differently for corn and beans. Most areas of the country have favorable returns for corn storage, but the opportunities in beans are much more scarce. If corn storage costs you 3 cents per month, then most areas of the country can net a profit by forward contract for April delivery although the Eastern Cornbelt has substantially larger returns. For example, in Ohio the April forward contract price is 31 cents better than the fall harvest price for October, so 18 cents of storage costs (3 cents per month for 6 months) would net you a 13-cent better price than fall delivery off the combine.

For beans, higher storage costs and slim price spreads for forward months leave little room to make a storage profit. However, like corn, the eastern Corn Belt offers better opportunities then markets in the West.

Grain futures continued to push lower this past week as cool temps and ample moisture have traders expecting large yields. Although some short-covering occurred after the sell-off, the market seems destined for lower prices unless weather conditions quickly change hot and dry.

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