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Grain basis gains on faltering barge rates

Agriculture.com Staff 12/20/2006 @ 10:15am

Barge rates are a key driver of grain basis levels around river terminal markets. Last year, barge rates reached record heights thanks to high fuel prices and strong barge demand from energy and construction related materials. At their peak, barge rates on the Illinois and Mississippi rivers were in the 80 cents a bushel range.

However, since harvest of 2006, the barge market has fallen sharply. Rates are now trading at 39 cents a bushel for the Illinois river in comparison to just two months ago when they were as high as 82 cents a bushel. Much of the slide seems to be supply-side driven as the number of empty barges along the major rivers are up 20 to 30% in comparison to this time last year.

With a 40-cent loss in barge rates, you would expect basis levels at key terminals to move higher as a result. Unfortunately, corn and bean basis levels have shown different responses to faltering barge rates. In soybeans, basis levels have moved higher at key river terminal markets by 35 cents or more since mid-October. Corn on the other hand has seen only about a 15 to 20 cent improvement in these same river markets.

Why the disparity between corn and beans? It seems to be driven by changing stocks at the Gulf export market. Even though corn export numbers have been strong, the region is seeing a large build-up in stock piles at major Gulf export markets. Last week alone corn stocks at the Gulf jumped 20%. The result has been a steep slide in Gulf corn basis, with a 20-cent slide over the past few weeks. In contrast, soybean stockpiles at the Gulf have been slipping which has kept basis somewhat firmer than corn.

For those areas not around the river, basis levels have been more moderate. In the western Cornbelt and Plains, corn basis has been flat since harvest to lower in some areas. The eastern Cornbelt has seen some strong basis gains after harvest thanks to big crop supplies in Indiana and Ohio.

Where do we go from here? While barge rates may continue to soften in the short-run, we wouldn't expect enough downside pressure to lift basis levels much further. Also, with high futures prices farmers seem more willing to move supplies into the cash channel keeping basis levels more moderated. All combined we don't see dramatic basis gains on the horizon and any cash storage should be done by locking in forward basis levels that can justify the costs.

Barge rates are a key driver of grain basis levels around river terminal markets. Last year, barge rates reached record heights thanks to high fuel prices and strong barge demand from energy and construction related materials. At their peak, barge rates on the Illinois and Mississippi rivers were in the 80 cents a bushel range.

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