Basis game

08/26/2011 @ 3:23pm

As harvest approaches grain marketing has turned into a basis game. Futures markets have held together very well in the face of approaching harvest. New crop soybean futures have made their fifth challenge of the $14.00 level. Action in the futures market today makes it appear that the resistance level is finally going to be broken.  New crop corn futures continue to make new highs regularly. Again, action today makes it appear that the trend will continue. It all depends on whether demand continues strong or demand rationing finally kicks in and tempers buying enthusiasm.

The real story is in the basis difference between bids for old crop versus new crop. At my local elevator here in southeast Nebraska basis for old crop soybeans is -.65 and basis for new crop is -.90. Basis for old crop corn is -.05. Basis for new crop corn is -.49. What this is telling farmers is that of you still have any 2010 grain it is time to sell it. There is no reason to hold grain with a cash price pattern that pays a substantial premium for immediate delivery.

For those wanting to price new crop grain the basis pattern is telling you to sell futures or hedge –to-arrive and take the basis risk yourself. The basis has eroded in the last month, but the normal pattern is for basis to improve some time during harvest. This makes storing for basis improvement a profitable strategy.

For those individuals looking for a time to make new crop sales, the September crop report that comes out the first week of the month is frequently a key to future price direction. In late August traders are still concerned about the possibility of frost or late summer drought. The release of the September crop report eases those fears and prices drop. I am not sure that will happen this year with all of the actual problems that have plagued the 2011 crop. However, if prices continue to rally into the report, it would be a logical time to add to new crop sales.

Last week Sharon and I took a week of much needed vacation. We spent the time in the Colorado Rockies. There is not a lot of grain produced in those mountains. However, I was surprised that the grass was green. After hearing all of the horror stories about how dry it is in the Southern plains I expected that to be the case where we traveled. Apparently we were not far enough south to see the really distressed areas. As we traveled between here and there in Nebraska and Kansas the crops looked normal. While we were gone my farm had two inches of rain. It always makes a vacation better when the crops are good when we get home! 

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