Corn Farmers Watch Basis Prices Improve, but Will They Sell?

Corn basis is over Chicago’s futures in the eastern Corn Belt.

DES MOINES, Iowa-- The local basis prices in many Corn Belt locations are improving, especially in the east. Will farmers sell?

That is the million-dollar question floating throughout the grain marketing world.

In fact, on Thursday, one grain broker alerted his farmer-customers to not miss the basis train while it’s in the station.

Al Kluis, Kluis Commodity Advisors, says that farmers should keep a close eye on basis levels in their areas.

“We are seeing a lot of activity, from firmer basis levels in Illinois to wider basis in Nebraska. Once the basis starts to widen out, it could get ugly quick,” Kluis stated to customers, Thursday, in a daily note.

Of course, basis prices are usually wide-ranging across the Corn Belt. It’s the nature of that market.

Traditionally, basis levels strengthen (narrow) due to area end users needing supply. Presumably, a shorter corn output in the eastern Corn Belt (ECB) this year has kept basis levels strong.

In addition, as floodwaters recede on rivers such as the Mississippi, Illinois, and Ohio, barge transportation costs fall, helping basis prices improve in the ECB.

For instance, as of Thursday, the POET biorefinary plant in Fostoria, Ohio, was offering a corn basis for November 2019 delivery price of 50¢ over Chicago futures at $4.26 per bushel. Basis for December 2019 delivery was 55¢ over Chicago futures at $4.31 per bushel.

The Fostoria buyer has been referred to as the poster child for high basis in the eastern Corn Belt (ECB).

Barchart, a Chicago-based data service provider, reported Thursday a national corn basis index price average of 15¢ under Chicago futures.

However, in the last five days, Corn Belt states such as Iowa, Illinois, Nebraska, and South Dakota have seen corn basis levels firm slightly.  

Indiana’s corn basis average is already 18¢ over the Chicago futures market.

Greg Lumsden, Cargill MarketGuide, says that a stronger basis pattern in the ECB that started in the summer is back.

“We did see unusual flows of corn out of Minnesota to Chicago on the Burlington Northern shuttles, late summer. While that essentially stopped when premiums fell in the ECB, it is the first place to see it restart again,” Lumsden told Agriculture.com. “There are bushels being pulled away from the river in St. Louis, Missouri, to the ECB.”

It’s worth noting that while the USDA’s 2019/20 corn carryout estimate is at 1.9 billion bushels, the market isn’t acting like that is the case.

“We are a couple of cents from delivery values on the December contract, suggesting tightness more akin to a 1.2- to 1.4-billion-bushel carryout,” Lumsden says.

Lumsden added, “If there is no rally in the futures market, farmers will continue to hold. But we have not had demand up to this point. We will see export demand in late December (very close to pricing today), and ethanol will continue to grind with small positive margins. Low-test-weight corn carries lower energy content, and more corn will be needed.”

With no change in farmer-selling, basis and spreads can firm on new demand until futures reach a point that sparks farmer-selling, he says.

“Or, farmers are forced to sell because they put away wet corn and are scared to hold it.”

Soybean Basis

Barchart’s national soybean basis index, up 3¢ in the last five days, is 65¢ below the Chicago Board price.

While some Nebraska locations list a bean basis close to $1.00 under Chicago futures, Indiana’s bean basis ranges from 15¢ under to 18¢ over Chicago’s price, according to cmdty by Barcharts.

All major U.S. soybean-producing states in the Corn Belt have recorded an improvement in their basis levels in the past five days, according to cmdty by Barcharts data.

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