Basis Gains on Bearish Crop News

Corn and soybean futures took a dive in the past few days thanks to a bearish USDA corn production forecast. Corn futures lost nearly 15 cents following the announcement and gave up another 3 cents on Monday. While the soybean number was bullish on face value, prices still traded lower in sympathy with corn and the fact that soybean carryouts should be large.

While futures took a hit, the cash corn market managed to offset some of the losses as basis gained a few cents in the last few days. Gains have been fueled by drought concerns in the Western Cornbelt and Northern Plains, as well as barge rates improving slightly.

Slow farmer sales will likely be the norm in the Western Cornbelt. With futures sliding and new-crop production prospects below par in the West, farmer sales should continue to be limited. Helping to fuel Western basis has been an improvement in barge rates from their astronomical heights. In the last week barge rates in the Minneapolis area have slipped 10 cents a bushel for shipments to the Gulf. When you combine this with 11-cent basis gains out of the Gulf, you have gains of 15 to 20 cents in basis in the last week at key river terminal markets n the Upper Mississippi.  In the Southeast, basis levels are beginning to come under pressure as harvest starts to pickup.

For soybeans, the basis gains were mostly confined to key river market regions. However, soybean basis at the Gulf was actually off 2 cents for the week so gains from lower barge rates were muted at key river terminals.

New-crop basis also showed strength for corn following the crop report. On average, gains of 1 to 2 cents a bushel on new-cop corn basis bids were the norm. However, soybean basis levels for new-crop delivery have been steady since the report.

The next week should see continued strength in basis in Westerns regions and along river markets. Grain buyers will need to keep basis up to have any hope of pulling corn out of farmers’ hands. However, Eastern markets should see little improvement in basis and we would expect to see basis levels to start weakening along seasonal norms.

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