Nearby corn futures climbed steadily in the early part of last week, reaching a high of $2.42 on Friday's open. With higher rain forecasts on Friday, futures dropped lower, closing at $2.31 on Monday. Analysts were expecting a 1% to 2% increase in crop condition scores on Monday, but scores remained steady with 53% in the good to excellent categories. Prior to this week, crop condition scores have declined every week for the past six weeks. Last year at this time, the good to excellent categories were at 75%. While still a key factor, weather will begin to move the market less dramatically now that silking is at 92%.

Weekly export inspection were above expectations at 37.73 million bushels. Shipments are now 85.7% of the USDA forecast for the season. Despite higher than expected exports, basis fell this week at many key locations accross the country. Basis at the gulf dropped 6 cents this past week, despite a 6% decline in ocean rates between the Gulf and Japan. Ocean rates have decreased 23% over the past month as a slowdown in the global economy has created a surplus of shipping capacity, acording to the most recent USDA Grain Transportation Report.

Another week of increased barge rates may be responsible for sinking basis at river locations such as Davenport. Barge rates from Davenport to the Gulf jumped 11 cents. Contracted rates for October are now at 57 cents, over 30 cents higher than this time last year. Davenport basis dropped a penny this week and is down 9 cents from this time last month. Rail rates were also up this week, helping to keep basis low.

In many locations, basis is down considerably from the previous month. Basis dropped in Minnessota, with Bingham Lake and Marshall showing declines of over 10 cents. Looking at the map below, it is apparent that Northern Wisconsin and North East Minnnessota have seen the largest declines in basis this month, leaving basis in the region 10 to 15 cents lower than last month. More modest declines in basis were seen in Iowa, while Eastern Illinois saw basis gain a few cents.

After a rally early in the week, nearby soybean futures traded sideways, closing this Monday at $6.73. Increased rain forecasts for later this week also impacted soybeans. Traders were looking for a 2% to 4% improvment in the good to excellent category, but the overall score remained unchanged at 54% on Monday.

Export inspections were below expectation this week, coming in at 2.77 million bushels. This is a 63% drop from last week. While total exports are nearly 20% higher than last year at this time, we are only at 94% of of the USDA forecast for the season, 2% below the average for this time of the year. Export numbers were revised higher on the July stock's report, and some analysts have predicted further increases. If we see several more weeks of disapointing inspection numbers, the rosy outlook for exports may fade.

Soybean basis was mixed this week. Several key markets in Illinois gained a penny, while markets in Michigan, Minnessota, and Nebraska lost several cents. Basis at the Gulf was unchanged this week. Lower ocean rates and higher barge rates are also pushing and pulling on soybean basis, and Davenport saw a four cent increase in basis despite the higher barge rates.

The map below indicates the change in soybean basis from last month. Decent gains have been seen in the midwest this month, with central Iowa and Missouri registering 5 to 10 cent gains. Illinois and Indiana saw basis move upwards 0 to 5 cents. Northern Minnessota and the Dakotas, on the other had, experienced some weakness, dropping as much as 10 cents.

Soybean basis typically declines from July to October. Recent increases are begining to move basis back to a level that is normal for this time of the year. With basis within normal range, the sharp decline in basis, common for this season, could come quickly.

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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