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Kevin McNew: Cash grain basis weakens

08/13/2010 @ 9:16am

Grain futures continued their ascent to higher territory as the market looks for falling global supplies and increased U.S. exports. However, at home the underlying cash markets continue to show weaker basis trends and we expect these trends to worsen as we approach the new-crop marketing year.

 

For corn, this past week saw basis levels off 3 cents a bushel on average across the country as barge rates jumped 5 cents a bushel. The only areas mostly immune to falling basis levels were the Southern Plains of Kansas and Oklahoma were basis levels were mostly steady.


For soybeans, losses averaged 8 cents a bushel for the week and the Gulf export market was off 12 cents. The inverse carry in the futures market combined with record-large new-crop supplies should keep soybean basis levels moving sharply lower over the next few weeks.


As we start to look ahead to new-crop harvest, both corn and soybean supplies are expected to be large which should put harvest-time basis levels weaker than normal. Furthermore, strong export demand will put a strain on grain flows causing barge rates and rail costs to increase, which should put more downside basis pressure this coming Fall. Look for opportunities to forward contract for post-harvest delivery as markets should pay ample returns through a wider carry.

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