Slow Harvest, Weak Futures And Lower Costs Boost Basis
Basis strengthens as cash and futures gap narrows.
Bryce Knorr
Published: Oct 17, 2008
The big gap between cash and futures narrowed a bit this week at most locations for corn, soybeans and wheat, as three factors combined to strengthen basis.
For corn, the slow pace of harvest left some shippers scrambling to fill commitments, giving a boost to river and rail basis. While soybean harvest is further along, most farmers appear to be willing to lock up their crop rather than sell for depressed prices, especially those with revenue-based crop insurance, who appear assured of a nice check to cushion the blow of the big collapse in futures.
So far there appears to be plenty of storage for the crop as well. That's particularly true in parts of the eastern Corn Belt where yields are off. Farmers have built a lot of storage in recent years, and plan to put it to work this year.
Transportation costs are also down sharply. Basis at the Gulf is much stronger than normal, thanks to ocean freight rates than are 85% below recent highs. Lower fuel costs make it cheaper to ship grain, and more ships are available as the global economy slows down in the wake of the worldwide financial crisis. Some ships are just plain stuck in port as well, as shippers have been unable to get letters of credit. To read Bryce Knorr's complete weekly basis review, click HERE.
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Tagged: Harvest, wheat, soybeans, soybean, farmfutures
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