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Basis levels provide sparkle

Agriculture.com Staff 10/24/2008 @ 9:22am

Basis levels have been tightening rapidly in the past week or so. The cash market is not getting the volume of grain that it would like during this harvest period, and so basis levels have moved higher almost every day. The rainy weather, the low prices, wet corn, the delayed harvest - all have combined to leave cash channels a little short.

For soybeans, this tight situation may continue until the December/January timeframe. During many years, basis levels improve until then as harvest winds down, farmers focus on corn combining and no one is excited about loading out a bin that was just filled. With bean harvest 67 percent complete on Monday, these conditions are lining up again this year.

With the decline in futures prices since July, the elevators and processors are also breathing a little easier regarding margin requirements and working capital. This, too, has undoubtedly allowed basis levels to come in.

Although most days the soy and grain markets trade remarkably like the stock market, some days other fundamentals come into play. China is still a powerful force and has been a very strong buyer of soybeans. They have been the featured buyer in the USDA's weekly export sales report (almost half of Thursday's 784,100 metric tons) and bought 330,000 mt earlier in the week. Weak demand does not apply to China!

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

Basis levels have been tightening rapidly in the past week or so. The cash market is not getting the volume of grain that it would like during this harvest period, and so basis levels have moved higher almost every day. The rainy weather, the low prices, wet corn, the delayed harvest - all have combined to leave cash channels a little short.

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