With the release of the February USDA supply and demand report soybean stocks increased by 50 million bushels this month. Domestic crush numbers fell by 10 million and exports projections were decreased by 40 million. None of this was a surprise, and soybean futures were relatively unaffected by the bearish report. Today, however, weekly export inspections came in at 34 million bushels beating analyst expectations by roughly 12 million bushels. This leant some support to both futures and basis.

Across the country basis is mostly wider than last month. Minnesota, Iowa and Illinois all saw basis widen by 2 to 3 cents. In the East basis improved this month. North Carolina's and Pennsylvania's basis increased by 6 and 9 cents respectively. Basis across the country remains well below last year's levels. The current record high stocks-to-use ratio of 19.9% has kept basis depressed throughout the season.

Looking at basis change over the past week it appears that the surprisingly high level of export inspections has buoyed basis. Soybean basis at the Gulf is up 8 cents this week. In addition to strong exports, Gulf basis was bumped up due to increasing barge rates (up 15% this week on average). As barge rates increase merchandisers at the Gulf are forced to bid up basis in order to obtains sufficient grain.

Select Iowa locations saw basis climb this week, with a 5 cent gain at Cedar Rapids. Illinois felt the negative effects of higher barge rates this week and all of the select Illinois markets listed below were either lower or unchanged. To the east basis may be pulling back after climbing in previous weeks. Basis at Raleigh, North Carolina was off by 3 cents.

Basis and futures tend to move in opposite directions depending on local market conditions. I looked at the average basis in Iowa over the past 9 months, and compared the change in futures prices with the change in basis. While there are a number of other factors that explain basis movements, I found a statistically significant relationship between increasing futures prices and basis. A ten cent increase in nearby soybean futures tends to lead to a 2 cent decrease in basis on the same day. Interestingly, there is not a significant relationship between lower futures prices and changing basis.

The relationship between basis and futures changes over time. In 2004, when supplies were considerably tighter, a 10 cent change in futures prices, either up or down, resulted in more than a 5 cent opposite change in basis. In a low price environment, similar to what we are experiencing now, producers choose to store their grain and slight increases in futures do not spark large grain movements. With higher prices, grain flows faster, and merchandisers can decrease their basis every time futures increase.

The important thing to keep in mind is that basis and futures tend to move in opposite directions, or at times have no correlation at all. Basis and futures are two different beasts and you need a separate plan for both. Give your local basis as much attention as you do the futures market and you will see the results in your final net soybean price.

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