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Cash basis under pressure from slower demand

08/16/2011 @ 1:11pm

The combination of slower export demand and only scattered sales of U.S. corn and soybeans following an overnight dip in futures prices are keeping pressure on cash basis levels.

Basis is the difference between spot cash and futures market prices.

Movement of supplies in the spot market is limited, as grain buyers are reluctant to pay premiums for nearby supplies, when cheaper supplies from the autumn harvest are only a few weeks away, a cash-connected CBOT broker says.

The approach of the autumn harvest is limiting basis appreciation, with grain buyers lowering the premiums they are willing to pay for spot market inventories in anticipation of greater supplies as harvest approaches.

Barge basis levels are under pressure as well, as higher freight charges and increased demand from terminals looking to move supplies from early southern U.S. harvest weighed on prices, analysts say.

Barge basis levels for shipment of soybeans to the Gulf ranged from 57 cents to 64 cents over August futures, down 6 cents from Monday. The Gulf basis for corn ranged from 68 cents to 78 cents, down 1 cent from Monday, according to data from USDA.

Cash basis levels at export terminals are weak, reflective of the U.S. attracting little fresh business, particularly with importers awaiting lower cost new crop supplies from the autumn harvest.

However, the basis for spot corn in Midwest markets remains supported by ethanol and processing plants, with some farmers and elevators holding old crop inventories tightly amid the threat of late harvests and lower new crop yields, analysts add.

Processors and ethanol plants that have not secured enough inventories to carry them into the fall harvest continue to report firm price premiums for supplies.

In western Indiana, the basis ranged from 26 cents to 30 cents over September futures, according to data from USDA. In eastern Indiana and Ohio, ethanol plants are paying from 40 cents to 60 cents over September futures.

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