The textbooks say supply and demand, along with transportation costs, play a big role in the basis farmers see in their local cash markets. Both forces were in play this week.
Terrible winter weather on the West Coast, from floods to avalanches, hampered movement of grain both within the region and to Asian customers buying off the PNW. Export inspections were weaker at ports nationwide, but PWN movement suffered even more. Rail delays and costs jumped, but were still well below levels seen during the Polar Vortex winter. Basis for corn, soybeans and wheat all firmed in Portland as a result of the delays.
Transportation issues in the Midwest focused on the river system. A seasonal slowdown in export shipments freed up barges, lowering the cost of moving grain down the river system to the Gulf. Costs along the Illinois River were down 7 cents this week, and growers selling corn and soybeans into those terminals picked up the savings with stronger basis.
But that’s where the similarity with corn and soybeans ended – and where differences in supply and demand emerge. The rally in corn futures convinced farmers to sell some of their inventory from the record 2016 crop. Average corn basis weakened as a result. Basis at country points, which has been weaker than normal this year, was steady to a little better, as merchandisers bought grain to send to terminals, where basis was softer.
The most widespread weakness in the cash market came at ethanol plants, where average bids fell 1 to 6 cents. Plants cut back production last week as inventory levels rose as output hit record levels this winter.
Soybean bids fared better. Average basis levels firmed 1 to 2 cents. The bet gains were noted along the river system, with areas tributary also improving though not as much. Basis at processors appeared mostly firm, supported by decent crush margins.
While soybean futures also rallied during the first half of the week, growers have regularly sold that market, putting more inventory in the strong hands of commercials storing for basis gains. March-May futures are trading around a dime, enough carry to provide an incentive to keep storing until bids firm.
Average basis in wheat weakened around a half-cent, remaining well below average. Country basis was generally softer but some terminals were raising bids for soft and hard red winter wheat to attract bushels. Spring wheat basis continues to firm, as supplies of that class are the tightest despite burdensome all wheat inventories.
Sorghum basis also firmed this week. Some buyers may be trying to attract bushels in hopes of better export demand after China bought three cargoes in the latest week.
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Senior Market Analyst Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.