I have participated in several discussions with farmers over the last couple of years regarding grain basis. Many producers are frustrated over a basis that appears larger than what history suggests it should be.
Grain elevator managers are asked to explain the factors influencing grain basis. One factor often identified is barge rates.
In order to get a handle on the history of grain basis, UA's Scott Stiles and Rob Hogan collected basis information for certain Arkansas locations from 2000 to 2006.
That information has been summarized and is available on our Web site at http://www.aragriculture.org/marketing/default.htm.
Part way down the page you will find “Basis & Seasonal Index” for soybeans and five other commodities.
The average soybean basis for the month of October at Memphis has ranged from 55 cents under in 2005 to 20 cents under in 2002 and 2004.
Andrew McKenzie, associate professor with the University of Arkansas Division of Agriculture, examined the effects of barge rates on basis levels for Gulf, Memphis and Arkansas soybean markets. He published his findings in Agribusiness An International Journal, Vol. 21 (1) 37-52 (2005).
McKenzie collected soybean basis data from April 1996 to December 1999 for certain Arkansas locations and the Memphis and Gulf terminal markets. He also collected barge rate data for that same period. He found strong evidence that the marketing system is working as it should.
McKenzie concluded that the Gulf terminal market plays an important role in transmitting pricing signals from export markets and that basis changes in the Gulf market cause movements in the Memphis basis and subsequently in the Little Rock market and other Arkansas locations.
He observed that Memphis plays a dominant price discovery role for internal Arkansas Delta locations.
His study also concluded that changes in barge transportation costs have a significant impact on the Arkansas soybean marketing system. Increases in barge rates translate into higher transportation costs to ship soybeans to export market. These higher costs represent a pricing signal, which is quickly transmitted across the soybean marketing system in Arkansas, and which is at least in part borne at the farm-level in terms of lower basis offers.
So, when those in the grain marketing industry explain that large basis is at least partly the result of increased transportation charges, this study by McKenzie provides evidence to support their position.
Grain basis and commodity marketing are two of the topics that will be covered at our Regional Farm Management Seminars in December. For more information on these half day seminars go to http://www.aragriculture.org/.