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Some lock in narrowing basis, others wait

Agriculture.com Staff 11/01/2006 @ 1:05pm

Unlike last November, when basis narrowed $0.45 in 30 days for some Corn Belt producers, the soybean cash basis isn't expected to narrow that much this fall.

However, some analysts and farmers see basis levels tightening enough for selling opportunities or at the least for locking in basis.

Basis is a reflection of local demand. Though it is stronger in the interior, there is little demand at the river terminals.

While corn basis levels remain firm in the eastern Corn Belt, the western Corn Belt, where most of the corn has been harvested, has wider basis levels, ranging from $0.60 under the CBOT in Minneapolis to $0.32 under in Des Moines.

As of Monday, many Indiana and Ohio farmers are just 25% complete on corn harvest.

WESTERN CORN BELT BASIS

Along with a lot of corn, there are still beans to harvest in the eastern Corn Belt; that's not true in the western Corn Belt.

Jason Ward, North Star Commodity Investment Co., said the northern Corn Belt basis levels at the river are terrible because barge companies are worried they can't get loaded and turned around in time to beat the closing of the river season. For soybeans, a current basis of $0.75 under the Chicago Board of Trade (CBOT) indicates selling at the river is a moot point until the river season opens again.

But, with inland Minnesota processors, country elevators, ethanol plants, or livestock users, basis levels are still narrowing. In Minnesota, the interior corn basis levels have narrowed $0.08 in the past few weeks. In Grundy Center, Iowa, the soybean basis has narrowed from $0.71 cents to $0.46 cents in the past several weeks.

"That's impressive because the market has been rallying. So we haven't widened out on a rally, we've narrowed on a rally," Ward said. "That is a bullish sign."

Ward added, "Guys are selling the carry on corn and not bringing it in now. Plus, the crop isn't as big as last year and you don't have the piles of corn that we did a year ago, so it's a tighter basis scenario."

Because of a better bean basis scenario, Ward sees the producers who already contracted soybeans for July delivery and captured an appealing carry but with a wide basis, bringing sales back (rolling back hedges) from that July time frame or opening the bin doors up and delivering some beans now.

"Farmers can defer the income until after January, so that isn't an issue. "The better basis is a dynamic that has changed in the last two weeks and it will bring some bushels on the marketplace," Ward said.

Though rolling back hedges may not be possible at every elevator, producers are still being urged to pay attention to their local market's basis levels in order to take advantage of any special pricing.

Randy Diffin, a producer near Burt, Michigan, said he is waiting for a better basis to sell this year's crop. "I wouldn't get too excited about locking in my basis right now," Diffin said.

At 45 under on corn, I'm still selling for less than $3.00. A lot of guys are waiting to see what this harvest brings when it's completed. Let's get some hard numbers at what this corn crop really is."

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