You are here

Basis opportunities arrive for some areas of Corn Belt

It depends on location, but producers are urged to consider locking in corn basis levels for some sales of both new and old crop, trade experts said.

Basis, the difference between a cash price at a specific location and the price of a particular futures contract, varies from city to city. Producers with July futures contracts would price corn for June or July delivery. To do that, the producer could use the basis to price the crop.

Basis levels firm
With higher corn futures prices, farmer selling, short corn supplies, and railcar demand, basis levels have improved $0.10 since March.

As of Wednesday, domestic cash prices averaged $3.36 1/4 for corn (-24 1/4 cents basis May CBOT corn), according to the National cash price index maintained by the Minneapolis Grain Exchange.

Other corn basis levels this week were firmer, such as on the Illinois River at $0.09 ½ under, and $0.01 under on the Ohio River. In southern Minnesota, and northern Iowa, some ethanol plants are offering $0.25 under for May delivery. Before the ethanol craze, these areas would be locations with the widest basis levels.

For the past two weeks, basis has firmed up significantly in many areas of the Corn Belt, analysts said.

John Roach, Roach Ag Marketing Ltd, said in a daily newsletter that the average basis for over 2,200 elevators throughout the Midwest as of Tuesday sat at about $0.24 under the CBOT futures for spot prices on old crop corn.

"In many places, we have the best basis of the year so far," Roach said. "It might get even better over the next week or two as planting continues to retard farmer cash sales and as further planting delays create anxiety for end users to become more aggressive at getting coverage."

Market play
Curtis Knobbe, U.S. Commodities LLC, director of grain group, said the market play is locking in basis levels.

"Producers want to plan on shipping corn for the rest of the summer, get that out of the way so they can focus on planting. So, we've been telling a large part of our customers to set their basis for either half or three fourths of their crop."

Matt Schmitt, local manager of the Peavey Elevator in Shelburn, Indiana, said current basis levels are not the best of the year, but still offer opportunity for the producer.

"With May corn basis at $0.18 under, and new crop basis levels between $0.30-$.40 under, there is opportunity right now for the producer," Schmitt said.

Historically, local basis at this time of the year is $.10 higher than its current level, Schmitt said. Plus, with a big corn crop expected in the fall, the current basis levels could be viewed as a time to consider locking in for new crop.

Flat price vs. Basis
Ray Jenkins, Iowa corn merchandising manager for Cargill corn milling, agreed the time is right for locking in basis levels for old crop on some sales.

"There are many places in the Midwest where bids at some processors are in single digits, even with the futures prices, and even higher," Jenkins said.

In Blair, Nebraska, and Dayton, Ohio, there are millers offering a basis $0.04-$0.05 over May corn futures, Jenkins said. "We've had a tremendous move in corn basis."

How has the basis firmed up so quickly? Jenkins said the farmers took advantage of higher prices and sold a significant amount of old-crop corn. On the flip side, you have a variety of end-users that haven't purchased enough corn for the planting season.

Meanwhile, because the majority are not basis traders, this is a good time to remind producers that basis is another tool they can use from their marketing tool box, Jenkins said.

Producers base sales more on the flat price, rather than the basis, Jenkins said.

As a result, it gets harder to stimulate producers with basis after they have seen strong cash price levels, Jenkins said.

"For example, we show a basis even with the board at $3.50, but the producer will say, my gosh, you were bidding $4.00 sixty days ago, now that was a good price."

For new crop, producers are urged to hold off locking in basis prices until acreage and the condition of the crop is better known.

In general, February, April and August have tended to provide the very best basis opportunities in over the last 5 years, Roach said.

It depends on location, but producers are urged to consider locking in corn basis levels for some sales of both new and old crop, trade experts said.

Read more about

Talk in Marketing

Most Recent Poll

Will you plant more corn or soybeans next year?