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Big news: local basis

12/20/2013 @ 4:14pm

The highlight of my week was attendance at the Nebraska  Soybean Expo and trade show held each year at the fairgrounds in Wahoo. I remember one of the first of these shows back in the 1990s when I was the featured marketing speaker. My big issue that year was selling all of my old-crop grain that was stored in bins at my farm to make the final payment on my farm loan. It was a cash flow strategy as well as a marketing move. It was a major issue in my life because I was able to pay off an FmHA loan without needing to roll it over into a mortgage with a higher interest rate. In case you wonder, I paid $700 per acre for that first piece of real estate.

The marketing speaker at this week’s expo was much more well-known than I was 20-some years ago. To say that he is negative on the price outlook for corn would be a huge understatement. I always look for something positive to offset the gloom and doom that prevails in times like these. I admit it is difficult to find anything positive in the corn market. There are two things I can bring into the discussion of the corn market. The first is that the outlook always looks the worst at the bottom. It is difficult to imagine the outlook any worse than it is. The second is that the carry between the nearby futures and the deferred futures is large enough to offer a little storage income for those who are willing to take it. It is not a simple strategy!

For me, the big story today is in the soybean market. For weeks I have been saying that I wanted to be sold out of old-crop beans before December 31. The strong market today offered me the opportunity to get most of last year’s beans priced. I based my action in making a sale today on several factors. The first is what I just mentioned. The January 1 drop-dead date is rapidly approaching. The second is that the local elevator has taken 20 cents off the basis in the last two weeks. Such a drop in the basis is usually an indication of weakening demand. Lastly, a buyer from one of the large processors in my area told an audience of farmers that his house was buying plenty of beans now that the flat price has recovered somewhat. This in turn indicates that they do not have to push the basis as much as they did earlier in the fall to get adequate supplies.

The highest cash soybean bid for the move was on November 29. The basis that day was -.45. Futures have continued to rally while the cash bids have been dropping. This kind of action is rarely a good sign for future price direction. I keep a few hundred bushels to donate to my favorite local charity after the first of the year. That is a way to reduce the tax load following a year of good income. It also is a good community service strategy that is approved by the IRS.

My focus for the next few weeks will be to look for opportunities to sell the carry in the corn market and to forward price some of next year’s soybeans when the opportunity is available.      


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