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Will basis get better?

Agriculture.com Staff 08/04/2006 @ 2:35pm

Over the last year and a half, basis levels have remained abnormally wide, especially in areas of big crops, which is most of the Midwest. It is not that there isn't demand, but end users remain hand-to-mouth, as ample inventory suggests there is no urgency to chase the market.

The question most farmers are asking is, will basis improve soon? To be blunt -probably not. In areas where the crop may be down due to poor growing conditions, look for basis levels to improve into the fall or possibly late 2006. As for areas that have ample inventory from last year, basis levels will, at best, likely hold or get worse. However, the long-term picture has a bright light to it. Basis levels should be much improved six to nine months from now.

We believe, by definition, that if carryout is going to drop nearly one billion bushels (half) from this year to next, it is just a matter of time before basis improves. In fact, optimists would argue improvement could come faster than expected in the fourth quarter of this year. An optimistic view would suggest that, if carry remains in the futures market, producers will be more likely to store or sell in deferred months, keeping nearby supply off the market.

The only real possibility for basis levels to improve the next 60 to 90 days is if estimated corn production begins to fall substantially. A mad dash by end users to cover long-term needs could ensue, thus providing a quick basis recovery.

If you have any questions, comments or would like us to put together a plan for you, contact Top Farmer at 1-800-TOP-FARM, ext. 129.

Over the last year and a half, basis levels have remained abnormally wide, especially in areas of big crops, which is most of the Midwest. It is not that there isn't demand, but end users remain hand-to-mouth, as ample inventory suggests there is no urgency to chase the market.

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