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Weekly Basis Review

Gyrations in old crop basis remain volatile, as the cash market figures out how much supplies must be rationed this summer. Only one thing looks certain: Storage hedges on 2012 crop corn are likely to be profitable.

While carry in the futures market this week tightened a couple of cents from December to July 2013, it still reflects the expected record crop that will need to be tucked away in storage this fall. Harvest slots for both rail and barges remain very expensive, weakening new crop basis and adding more incentives to keep grain off the market until it’s needed. Basis could tighten 20 cents on freight alone from October into December delivery, with futures carry adding more potential returns.

Lack of farmer movement of grain into the export pipeline caused nearby barge freight rates to drop this week, taking as much as six cents a bush off the cost of shipping to the Gulf. But basis markets responded differently.

Corn basis along the river system remains historically very strong, but bids pulled back as shipments remain somewhat sluggish. Demand for soybeans to ship overseas is better, lifting basis and causing the type of bull spreading seen in the old crop corn market ahead of the explosive May delivery period. Though old crop soybean inventories are not projected to be nearly as tight as for corn, bean supplies are locked up in the strong hands of commercial owners, since most farmers are already sold out.

Basis elsewhere in the Corn Belt firmed this week, as ethanol processors and livestock feeders battle to attract supplies. Despite questionable margins, ethanol plants have stepped up production the last couple of weeks thanks to improve demand for the biofuel.

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 Advisor. 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.