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Cash basis is pressured at harvest

Harvest time is fast approaching, and some will refer to October price moves as "The October Scare".

Uncertainty about crop sizes is alleviated and the inflow of grain at elevators puts basis under pressure at harvest. However, even before harvest, the market can also come under pressure. September is traditionally a weak month, not only on basis but on futures prices as well.

Examining futures prices between September 1 and September 30th over the last 8 years shows that both corn and soybean prices tend to be lower at the end of the month. On average, corn prices are 13 cents lower while soybeans are 9 cents lower. Furthermore, in those 8 years, corn prices were lower 6 years while soybean prices were lower in 5 of those years.

For basis, the results are more mixed. Soybeans clearly show a tendency to have basis weaken between now and the end of the month. In the Corn Belt, losses of 15 to 20 cents a bushel are fairly typical over the next four weeks.

For corn, there is no clear pattern. The average is pretty much a break-even proposition. However, there are some important lessons in looking at the data from the last 8 years. The losses in the losing years are bigger than the gains in winning years. Although basis gains are more likely in September, the extent of those gains is relatively small. And, in years when there are losses, those losses are big. As such, there is a fair amount of risk in storing corn on basis over the next month.

For the next month, we expect a similar pattern to emerge for corn and beans. Both should be under pressure as harvest draws closer. We've had decent basis gains for August, especially in corn, but end-users should see the pipelines start to fill up. Expect any basis improvement to be short-lived and used as an opportunity to unload any remaining old-crop supplies before harvest.

Harvest time is fast approaching, and some will refer to October price moves as "The October Scare".

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