With corn prices in the tank, it is easy to overlook a key marketing decision that will have to be made in the next few months. Should you set your basis on a portion of your expected crop before harvest? Your answer to that question could have a major impact on your bottom line.

There are two elements to the price you receive for your corn at the local elevator — futures price and basis. Basis is the difference between the spot, or cash, price of a commodity at a local delivery point such as a commercial elevator, and the price of a particular futures contract. Most grain buyers offer you the option of a basis contract — setting the basis for a particular delivery time in the future but not the underlying futures price.

Your goal for this year (and every year) is to get the best basis you can for your corn, whether you sold it at $2.70 September futures over a year ago as we recommended to our clients or you haven't priced a bushel.

With the possibility of a marketing loan gain (LDP) it's still important to focus on basis. Why? The posted county price subtracted from your county or parish loan rate at harvest determines the dollar amount of the LDP. Once you collect your LDP, you have to then go into the cash market and price the corn.

Recent basis history tells you that unless you plan on storing well past harvest, you probably should lock in your basis before harvest.

What makes basis change so much? The simple answer is supply and demand. River levels, barge freight costs, and demand from chicken and catfish feeders all can have dramatic impacts on your local basis.

The elevator has to have at least an 8-cent margin on each bushel of your grain to stay in business and needs to manage its flow to take care of sales commitments — buying enough but not too much. We all remember the salad days of 50 cents over the board basis for corn in 1996 and $1 over for early beans in 1997. The last three years we've settled back into perhaps a more normal pattern.

Take a look at a seasonal corn basis chart at a major terminal elevator on the Mississippi River for 2000.

Basis up to and including harvest the last five years ranged from -40 cents in the aflatoxin year of 1998, to +7 cents, a range of 47 cents, or a difference of $70 an acre on 150-bushel corn.

A concern that needs to be addressed in using basis contracts is that it can impact marketing loan eligibility. The Farm Service Agency may consider a crop that has an established basis at time of delivery to be ineligible for loan. This does not mean that an LDP payment could not be collected, but it could negate the ability for basis-contracted bushels to go into the loan and be redeemed with certificates. This would only become an issue if you have exceeded the $75,000 per entity limitation (or whatever it may become — the payment limits have been doubled for the past two crops).

In my mind, $70 an acre is an important contribution to profit and needs to be paid some close attention. I would suggest that you track basis weekly at several locations, study the seasonal patterns, and pay attention to stocks in all positions and loan redemptions. Or hire someone to do this for you. It is especially important in times like these when every penny counts.


D. Trent Roberts is an agricultural marketing consultant with Scott & Associates Agricultural Marketing, Inc. He can be reached by phone at 800-206-2474.