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Rush to the river

Agriculture.com Staff 11/13/2008 @ 9:31am

Corn and bean basis levels gained significant ground as barge rates plunged. Gains of 20 to 30 cents a bushel in basis were commonplace along the river this week as seasonal weakness in barge rates started to kick in.

A late grain harvest this year put unusual pressure on the barge market, pushing IL river barge rates higher than had been at the time of Hurricane Katrina. Now, as harvest wanes, barge rates are falling fast, giving up 40 cents a bushel in the past week. More weakness should occur over the coming weeks, and this should help lift basis levels around the river system.

For corn, U.S. average basis levels climbed 4 cents a bushel on average. Most of the large gains occurred around the river system. Areas in the western Corn Belt and Eastern seaboard were mostly unchanged. Gulf corn basis was up 1 cent a bushel for the week.

For soybeans, basis gains averaged 8 cents a bushel around the country. Again, river markets were the largest benefactor of strong basis while other areas were mostly 2 to 4 cents higher for the week.

Basis levels will continue to improve, in part from further declines on barge rates, but also on weakness in the futures market. Furthermore, most forward cash contracts offer few rewards to storage. The table below shows the average price spread between January delivery and current spot prices. On average, grain buyers in Iowa are only offering a 3-cent a bushel premium to store grain until January, hardly covering storage costs. For soybeans the numbers are generally worse.

What this means is most farmers that are storing grain have likely not committed to forward contracts, so end users will need to pull grain out of the system by driving up basis. This should be a good year to capture strong returns on storage through basis improvements.

Corn and bean basis levels gained significant ground as barge rates plunged. Gains of 20 to 30 cents a bushel in basis were commonplace along the river this week as seasonal weakness in barge rates started to kick in.

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