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Basis opportunities arrive for some areas of Corn Belt

Agriculture.com Staff 02/14/2016 @ 10:57am

It depends on location, but producers are urged to consider locking in corn basis levels for some sales of both new and old crop, trade experts said.

Basis, the difference between a cash price at a specific location and the price of a particular futures contract, varies from city to city. Producers with July futures contracts would price corn for June or July delivery. To do that, the producer could use the basis to price the crop.

Basis levels firm
With higher corn futures prices, farmer selling, short corn supplies, and railcar demand, basis levels have improved $0.10 since March.

As of Wednesday, domestic cash prices averaged $3.36 1/4 for corn (-24 1/4 cents basis May CBOT corn), according to the National cash price index maintained by the Minneapolis Grain Exchange.

Other corn basis levels this week were firmer, such as on the Illinois River at $0.09 ½ under, and $0.01 under on the Ohio River. In southern Minnesota, and northern Iowa, some ethanol plants are offering $0.25 under for May delivery. Before the ethanol craze, these areas would be locations with the widest basis levels.

For the past two weeks, basis has firmed up significantly in many areas of the Corn Belt, analysts said.

John Roach, Roach Ag Marketing Ltd, said in a daily newsletter that the average basis for over 2,200 elevators throughout the Midwest as of Tuesday sat at about $0.24 under the CBOT futures for spot prices on old crop corn.

"In many places, we have the best basis of the year so far," Roach said. "It might get even better over the next week or two as planting continues to retard farmer cash sales and as further planting delays create anxiety for end users to become more aggressive at getting coverage."

Market play
Curtis Knobbe, U.S. Commodities LLC, director of grain group, said the market play is locking in basis levels.

"Producers want to plan on shipping corn for the rest of the summer, get that out of the way so they can focus on planting. So, we've been telling a large part of our customers to set their basis for either half or three fourths of their crop."

Matt Schmitt, local manager of the Peavey Elevator in Shelburn, Indiana, said current basis levels are not the best of the year, but still offer opportunity for the producer.

"With May corn basis at $0.18 under, and new crop basis levels between $0.30-$.40 under, there is opportunity right now for the producer," Schmitt said.

Historically, local basis at this time of the year is $.10 higher than its current level, Schmitt said. Plus, with a big corn crop expected in the fall, the current basis levels could be viewed as a time to consider locking in for new crop.

Flat price vs. Basis
Ray Jenkins, Iowa corn merchandising manager for Cargill corn milling, agreed the time is right for locking in basis levels for old crop on some sales.

"There are many places in the Midwest where bids at some processors are in single digits, even with the futures prices, and even higher," Jenkins said.

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