Hurricane Katrina and the always volatile rain forecasts have been moving the market this past week. Both corn and soybean futures dropped on the expectation of plentiful rainfall last week. The expected rain failed to materialize over the weekend and the markets rallied on Monday. Now Katrina is expected to bring more rain to dry areas of Illinois and Indiana and we could see the market fall again.

Katrina is also playing on the cash market. Corn basis at the Gulf was up a penny this week due to strength in the cash market early last week. However, as Katrina passes over the Gulf we appear to be in the eye of the basis storm. With most export facilities shut down, and limited cash trading occurring, corn basis has been steady at 38 cents a bushel for the last four days at the gulf. The map below shows how basis has changed over the past ten days. Basis along the river continues to slide, as barge rates increase. To the West, basis has increased as futures prices have fallen.

On Monday, many key markets along the river took a 7 to 10 cent a bushel dip in basis. With flows down the river likely stimied for the coming days and corn bins alreadty full, corn basis may be slow to recover from this recent slide.

With the storm moving past, the question is where will basis move from here? The answer would appear to depend upon location. With little or no grain moving down the river for the past few days exporters could drive up basis in order to meet demand. Basis along the river, could go both ways. Storm related congestion on the river could drive barge rates even higher, further decreasing basis. However, Katrina could bring much needed rain to the river systems, raising the currently record low water levels and allowing barge capacity to increase. This would be a boon for farmers along the river, who could see lower rates and higher basis. Even the west, where basis is less affected by barge rates, will likely see basis move as a result of Katrina, as trucking rates will climb in the near term.

With Oil above $70 a barrel, and many refineries offline, some analysts are expecting gasoline prices to jump 20 cents within the week. Diesel will not be far behind. We have seen commercial trucking rates for corn increase by nearly 20% since this time last year. A possible price spike in the near future, no matter how short lived, could dramatically alter basis across the midwest. Basis will drop the farthest and the fastest at smaller elevators further from major rail lines where the full cost of higher $70 oil will be felt.