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The basis movement is on

10/21/2011 @ 6:27am

Soybean harvest is about over in Cass County, Nebraska. Yields range from the low 40’s to the mid 60’s. 

The wide range of yields will make for interesting coffee shop talk this winter. Personally, I am satisfied with my yields. They were the lowest since 2003, but still above 50 bushels per acre. That is, if I can ignore the 13 acres that were flooded by the Missouri River and had a yield of zero.

As soybean harvest winds down, the big move in cash basis that I expect every year is on. In my winter marketing workshops, I teach that basis typically is very wide for new crop forward contracts early in the season. As harvest approaches and then gets into full swing the basis gets better. As farmers around the country finish up with their combines, the negative spread between cash and futures gets smaller.

It happened this year first in the corn market. On September 29, the cash corn bid here was $5.83. December futures were 6.33. That is a basis of -$.50. On Thursday of this week the basis was -$.27. That is an improvement of $.23. That is a good move in three weeks time.

The basis improvement was even more impressive for soybeans. On October 12, just ten days ago, the basis was -$1.00. Eight days later, Thursday of this week, the basis had improved to -$.65, an improvement of 35 cents. A big improvement in basis is normal in the 'dead cat bounce'. However, I can not remember a faster basis improvement in any previous year. This tremendous improvement is an indication of good demand. It also could reflect disappointing yields and the huge acreage inundated by the Missouri River all summer. How much more the basis will improve is a guess.

The drop in futures this week is a big disappointment. However, the improvement in basis means that those who hedged their production in the futures market or using hedge-to-arrive contracts now have things going their way. Personally, I have a portion of my production covered with January futures at $13.75. With a basis of -$.65, I will net $13.10. That meets my goal of $13 cash soybeans that I set when I placed the hedges.  

The 'dead cat bounce' is ten days old as of today. Even after the sell off earlier in the week, the cash price improvement is still more than a dollar a bushel. I am optimistic about soybean prices in the short run. It is hard to imagine with more than a dollar price improvement in less than ten days that prices will fall out of bed this soon. I take the price improvement of over a dollar a bushel and basis improvement of 35 cents as an indication that the cat lives!

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Soybeans Rally on Demand, Weather