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Futures rally, harvest put basis under pressure

10/13/2010 @ 10:57am

Futures catapulted at the end of last week on the heels of new crop forecast numbers that showed a big drop in U.S. corn and soybean production. For the week, corn futures were up 80 cents while beans added a $1 to their price.

With such a big jump in the futures market, cash traders began to more aggressively drop basis levels around the country, with average U.S. corn basis being down 3 cents on the week, and soybeans giving up nearly 9 cents on basis.

In the corn market, basis levels were especially hard hit in the Northern reaches of the U.S. were harvest was well under full swing. In Iowa, Minnesota and South Dakota, end-users of corn dropped basis 10 to 20 cents a bushel. In the South, much of the corn harvest is wrapping up, which has helped keep basis relatively stable there. Overall, basis levels around the country are generally running 20 to 40 cents below normal for this time of year.

For soybeans, basis levels were also off sharply in the Northern stretches of the grain belt, while more southern states saw less pressure on basis. Gulf basis was off 5 cents a bushel for the week, and upstream river terminals were mostly weaker still on the heals of harvest pressure.

Large crops coupled with high futures prices could keep cash deliveries running brisk this Fall, but some wide carries for forward delivery should keep some grain off the market. Look for opportunities to lock in favorable forward carry in the basis in the coming weeks as spot basis levels widen further.

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