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Time to watch cash basis

Agriculture.com Staff 02/06/2016 @ 7:26pm

CHICAGO, Illinois--With seasonal basis improvements already under way, producers are being urged to watch local prices more closely this year.

Normally, harvest pressure widens the basis price at local elevators (the basis being the difference of the local cash price compared to the Chicago Board of Trade futures price).

However, because of an early finish to harvest in the eastern Corn Belt (ECB) and a delayed harvest for the western Corn Belt (WCB), the local cash basis levels are improving sooner than normal, marketwatchers say.

Roy Huckabay, Linn Group executive vice president, says the basis changes have already started for both corn and soybeans.

"In the eastern Corn Belt, the corn basis is up 12 cents off its lows and up 15 cents in the western Corn Belt. The soybean basis is up 25-30 cents off the lows in the ECB," Huckabay says.

In the ECB, the corn basis is up because the southeast corn harvest is primarily finished and the corn has to be replenished, Huckabay says. "In the western Corn Belt the basis is up because of the harvest delays."

For example, the rail corn basis in Ohio is up 12 cents, traded 10 cents under the Chicago Board of Trade futures price, up from the low of 22 cents under. Plus, in Decatur, Illinois, the corn basis is already 15 cents under CBOT.

"It will soon go to being over the CBOT," Huckabay says. This time last year, the basis was 25 cents under and it reached 15 cents over by Dec. 1. We are on pace to reach those levels earlier this year."

Bob Worth, a southwestern Minnesota producer that uses hedge-to-arrive contracts to sell crop, is watching the local basis very closely.

So far, Worth is shocked local basis is so good this early in the season. The area near Lake Benton, Minnesota, is seeing corn selling 35 cents below CBOT futures prices. "That's dang good when normally at harvest corn basis is 40 or 50 cents below Chicago. It's amazing it's as good as it is."

Because of the increased number of ethanol plants in Minnesota, the corn basis continues to improve, even in a record crop year, Worth says. "Ethanol plants are the driving force for this improved demand for corn. So, it's good for farmers right now."

Andy Shissler, Roach Ag Marketing, Ltd. wrote in a daily newsletter this normal seasonal basis improvement is coming about two to three weeks early this year.

"We think basis numbers will peak early this year between now and the second week of November, due to the amount of grain stored in ground piles across the Midwest. A record number of hedge-to-arrive contracts sit in the farmer's hands waiting to be priced. These pricings on top of the movement of ground piles will weigh heavy on delivered basis in the months of December through March," Shissler stated.

Shissler added, "We don't expect great basis numbers this year for corn and expect basis peaks to be a little bit less than you've been accustomed to, but be ready to capitalize. Watch your basis bids daily. Futures weakness will accelerate basis improvement."

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