It is important to remember that as of June 1st corn stocks totaled 4.32 billion bushels, up 45% from June, 2004. Farmers are holding 2.46 billion bushels which is 60% higher than the previous year. It would appear now that producers are begining to liquidate their stocks, forcing basis down. In March producers held 60% of the stocks, and by June that percentage had fallen only slightly to 57%. By September 1st on-farm stocks typically make up less than 40% of total stocks, so the decline in basis we have seen recently may be due to increased sales as farmers attempt to decrease their corn holdings to typical levels. As farmers make theses seasonal sales, with stocks the highest they have been since 1988, basis may drop considerably.

Corn basis this year is over 10 cents below the 5 year average. Historically, basis begins to slide in the spring as harvest approaches. There are typically a few rallies in basis, such as in mid-August, but the slide will usually continue into October. With abundant old crop corn stocks and a potentially large crop in the field, I would expect corn basis to continue to slide well into October.

Soybean futures were also down this week. However, soybean basis was stronger than corn basis. There were only minimal declines and some large gains. The table below lists basis change at several key soybean markets throughout the country.

Basis at the Gulf increased 4 and 5 cents this past week, for both corn and soybeans. Interior locations saw much weaker levels. Part of this difference is due to higher barge rates, which drive down basis considerably at river locations such as Davenport. The Davenport barge rate was at 40 cents per bushel of corn this last week, up 2 cents from the previous week. Of even greater concern is the contract rates for October of this year. October rates are at 53 cents a bushel, which is 23 cents higher than the previous year. While a wet spring in the NorthWest has refilled many of the crucial reservoirs, drought conditions still exist. Low water levels in the Mississippi and a decent harvest could increase barge rates substantially.

Soybean basis historically peaks in July and then drops sharply until the first part of October (2004 basis levels are not included in the average). Basis has been strong this past week and as it is 10 to 15 cents below the average it might look like there is the possibility of a rally. Keep in mind though that harvest is quickly approaching and any upside potential is limited. Watch for basis to slide quickly once August approaches.

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