Grain basis revisited
May 14, 2009 10:56 AM,
By H. Scott Stiles
Extension Economist
University of Arkansas
For much of 2007 and 2008, wheat, corn and soybean basis levels in eastern Arkansas were historically weak. A lack of cash and futures price convergence during futures contract maturity was widespread. Over the past twelve months some improvement can be noted in both cash and new crop basis levels.
Wheat
New crop wheat basis (USDA Agricultural Marketing Service) has improved noticeably over the past year at Mississippi River terminals. As of April 29, average bids for June/July delivery to Memphis, Tenn., and Helena, Ark., were 65 cents under July 2009 futures. A year ago, new crop bids averaged $1.35 under July 2008 futures.
While new crop wheat basis still is weak by historic standards, basis levels may continue to tighten. Further basis improvement could come as a result of a much smaller 2009 crop and declining inventory levels. The USDA’s Winter Wheat Seedings report released Jan. 12 indicated that all winter wheat acreage was down 9 percent. By class, Soft Red Winter (SRW) acreage was down 26 percent from last year.
Arkansas’ wheat acreage dropped from 1.07 million in the 2008 crop year to an estimated 420,000 acres in 2009.
Corn
As of April 29, average new crop bids for corn at Memphis and Helena were 35 cents under September 2009 futures. On the same date one year ago, August/September delivery bids at these locations were 45 cents under September 2008 futures.
As for the 2008 crop, there is considerable improvement this year in the spot or cash basis. Currently, spot corn bids at Mississippi River terminals are 8 cents under July 2009 futures. One year ago, the spot basis was 23 cents under July 2008 futures.
The new crop corn basis is at the same level as in 2007 and slightly below the three-year average of 33.5 cents under September futures. Strength or weakness of the new crop basis for the balance of this growing season will be influenced in part by the size of the 2009 crop.
There’s a real potential for a large 2009 corn crop. The March 31 Prospective Plantings report issued by the USDA indicated only a small decline of 1 percent in U.S. corn acreage from 2008 — based on grower intentions in early March. Thus far, spring planting conditions in the western Corn Belt are significantly better than last year and offer a chance for improved yields in 2009.
Soybeans
There is also year-over-year improvement in new crop soybean basis. On April 29, average bids for September/October 2009 delivery to Memphis and Helena ranged from 25 cents to 30 cents under November 2009 futures. A year ago, average harvest delivery bids were 70 cents under November 2008 futures.
Still, new crop basis levels are relatively weak compared to years prior to 2007 and compared to the positive old crop basis currently offered.
Spot soybean bids at Mississippi River terminals are currently 19 cents over July 2009 futures. One year ago, the spot basis was 20 cents under July 2008 futures.
A number of factors have contributed to improvement in the spot soybean basis over the past year. Lower fuel prices have reduced the cost of transportation. Poor soybean yields and political problems in Argentina contributed to U.S. soybean exports moving at a record pace during the 2008-09 marketing year.
Also, soybean futures prices declined for the most part during the recent winter months. This in turn made producers reluctant sellers of old crop soybeans.
In contrast, grain merchandisers are not expected to aggressively bid for new crop soybeans. U.S. soybean acreage is expected to increase in 2009. More acres and favorable growing conditions will likely result in an exceptionally large crop and resulting increase in inventories.
