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Grain basis stalls after harvest

Agriculture.com Staff 11/29/2006 @ 3:08pm

Basis levels defied harvest the past two months moving sharply higher. A slow harvest in the eastern Corn Belt kept cash grain traders bidding up basis to meet short-term needs, while a smaller than expected crop in the western Corn Belt and competition from ethanol plants kept basis levels moving higher.

Current U.S. average corn basis levels are on par with normal basis conditions for this time of year, after being about 10-cents below normal in September. In contrast, soybeans continue to trade at 15 cents below their historical norms.

With harvest now behind us, the question remains where do we go from here. In the corn market, futures have definitely done the brunt of the work in terms of sending warning signs about the lack of supplies in the 2007 crop year and trying to curb usage in 2006. From a cash perspective, the market has plenty of corn to work with in the current marketing year. So, the question will be whether farmers continue to keep pipelines full or will they hold out for higher prices.

Some data from key terminal markets in the Midwest suggest corn flows are more than adequate at this stage. So far this fall, these terminals have seen net-receipts (receipts of grain less shipments of grain) go up 5.2 million bushels, as compared to 2005 when net-receipts over this time period were up only 4.6 million bushels.

For soybeans, a somewhat different pattern is emerging as net-receipts have been 12 percent lower in 2006 as compared to 2005. This may be one indication that farmers are holding beans more than corn. A strong cash carry for soybeans as compared to corn is one reason this is happening as farmers find better returns to storing soybeans.

Corn basis this week was mostly unchanged, with some modest increases in Indiana and Ohio. There was some weakness in eastern Iowa and southern Minnesota as barge rates moved marginally higher on the week at Davenport. Also, the upper Mississippi will soon close which should put some additional pressure on basis levels in the upper Midwest.

For soybeans, basis levels saw slightly better gains. Areas in Missouri, Illinois, Wisconsin and Indiana saw some strength in bean basis. In contrast, the eastern Seaboard and Southeast experienced some weakness in basis.

With corn prices approaching $4 in some areas and adequate supplies of corn in farmers' hands, it seems unlikely that basis will need to move higher to encourage farmer sales. We would expect basis levels to hold up but show little room for improvement. On the other hand, soybean basis could prove to show more strength in the coming weeks.

Basis levels defied harvest the past two months moving sharply higher. A slow harvest in the eastern Corn Belt kept cash grain traders bidding up basis to meet short-term needs, while a smaller than expected crop in the western Corn Belt and competition from ethanol plants kept basis levels moving higher.

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