Rep. Jo Ann Emerson, R-Mo., and Rep. Marion Berry, D-Ark., have asked the Federal Trade Commission to look into the widening of the wheat basis in their districts in southeast Missouri and northeast Arkansas.
They said they believe the difference between the prices being offered by local grain buyers versus soft red winter wheat futures on the Chicago Board of Trade has moved beyond the normal basis for the harvest period in the Mid-South.
“When prices go up at the Chicago Board of Trade, the price in our local markets doesn't reflect that increase,” Emerson said in a statement issued by her office in Washington. “In our agricultural markets, that means dollars taken out of the pockets of our farmers.
“I guarantee that, should wheat prices fall, the full weight of a negative change will be passed on to the farmer. There is no reason the increase should not be passed through to the producer. The FTC can determine whether or not our agriculture community is being treated fairly and, if not, what steps are appropriate to correct the problem.”
From May 3 to May 22, the July contract for wheat increased 61 cents at the Chicago Board of Trade, compared to 15 cents at river terminals in the Eighth Congressional District.
Elevator operators on the Mississippi River said several factors are playing into the weak basis, including higher freight costs and a lack of demand for soft red winter wheat at the prices it is being traded on the Chicago Board of Trade.
In a letter to FTC Chairman Deborah P. Majoras, Emerson and Berry said they were requesting the Federal Trade Commission investigate the possibility of anti-competitive wheat purchasing activities by grain elevators in the Mid-South.
“As we write, the current basis differential between the nearby wheat contract on the Chicago Board of Trade and a Mississippi River grain elevator is negative 70 cents. This is a significant change from historical basis patterns in the region.
According to the University of Missouri Extension Service, the 15-year average for the historical basis for nearby wheat contracts in the area for the first of June is a minus 6 cents; the 12-year average, minus 9 cents; 10-year average, minus 9 cents, seven-year average, minus 7 cents; five-year average, minus 3 cents; and the three-year average, plus 1 cent.
“Even at the height of last year's river transportation disruption caused by Hurricane Katrina, the average basis was 65 cents below the nearby contract, before returning to a 1 cent above average in December,” they said.
“Today no transportation crisis exists, diesel prices for river barges are falling and a bushel of wheat can now be shipped from the Mid-South to the Gulf Coast for as low as 11 cents a bushel. An explanation for the dramatic widening of the basis is necessary, yet without the usual suspect of high transportation cost, an explanation escapes us.”
One elevator manager said the actual cost of barge freight for soft red winter wheat, as of May 31, was 31 cents per bushel. The difference in the cost of shipping a barge load, or 80,000 bushels of soft red winter wheat, from Cairo, Ill., to New Orleans at the May 31 rate vs. the 11-cent-per-bushel rate would be at least $16,000, he noted.
“The main reason the basis is so weak, however, is the lack of export demand to other countries,” said the operator, who asked not to be identified.
“Chicago Board of Trade futures are high because of speculative buying by hedge funds and follow through from the Kansas City Board of Trade due to the poor hard red winter wheat crop on the High Plains. Foreign buyers don't want to pay those higher prices for soft red winter wheat.
“I feel for producers in our area, but they have a very good crop to harvest and prices are above average. Things could be worse: they could have a terrible crop and low prices.”
“The CBOT price for soft red winter wheat has followed Kansas City hard red wheat up because of the short crop,” said a Mississippi-based elevator operator. “There are no supply/demand issues with soft red winter, so Gulf bids are extremely poor historically for it to move into the export market. No one wants soft red winter right now so we are at full carry July to September spread; that is, the market is paying to store until a later date.”