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Weekly Basis Review

Plenty of headlines screamed for attention in the futures market this week. But cash basis continues to filter the noise in the grain trade.

In the corn market, for example, USDA raised its forecast of old crop ending stocks due to weaker exports. That's true overall, because sales have weakened as the market rations tight supplies. But actual shipments were fairly strong last week at 14 million bushels, which was above the rate forecast by the government for the rest of the summer. Basis at the Gulf firmed as a result. Basis did ease along the river system pipeline. But that was due to lower barge freight costs. Plenty of barges are available as the shipping season winds down.

Freight costs are expected to soar at harvest, as usual, increasing the cost of moving a bushel of corn down the Illinois River 34 cents a bushel. And USDA maintained its forecast for record production, with 2013 crop ending stocks approaching 2 billion bushels. That means basis will have to be weak to push all the unneeded grain into storage.

Not all the news for corn was bearish. USDA raised its forecast for the amount of corn used by ethanol plants, and a separate report by another agency showed production staying near one-year highs. Nearby corn basis in the eastern and western Corn Belt mostly firmed, reflecting this source of consistent demand.

Basis for soybeans was erratic, thanks to big moves in the July futures contract. Many traders were liquidating bull spreads with July as the Goldman roll took place, when funds following the index move positions out of the nearby. Most cash market buyers aren't bidding off the July, which retains a big premium to other contracts.

Harvest is normally a time of weakening basis in the winter wheat futures market. But with harvest behind schedule, bids are holding up so far against Kansas City and Chicago July. And basis many places is running at stronger than normal levels. Wheat sales and shipments have picked up, and wheat remains in demand as an alternative to corn in livestock rations as well.

White wheat exports in the latest week were minimal, as importers continue to monitor the GMO issue. No new samples have been found, however, helping stabilize basis off the PNW.

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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.