Grain Division: Why is Basis So Wide?
With basis levels at record wide levels, the resounding theme I hear from customers is, “Why is the basis so bad?” The simple answer is that the market is trying to contend with a glut of grain that has nowhere to go for a while. Regarding wheat, an overall poor quality / poor protein crop was disappointing to domestic flour mills. The size of the crop was so large that production outpaced demand. Projections are that 49% of the Kansas crop will not be consumed this year and will have to carry over into next year’s supply chain. The good news is that the futures markets are paying producers to sell it later, rather than sooner. Next July futures are about 37 cents higher than the nearby futures. This will, at least, help offset storage costs while the market struggles to find the correct price point to spark demand.
Corn and sorghum basis are currently wider than normal, also. As you are aware, elevator space is limited because of the large wheat crop. In addition, the fall crops look extremely good across a large region. Many elevators have no choice but to put most of the crop on the ground this year, which adds to the ‘risk’ component of the basis equation. The good news is that current basis levels have created some demand for corn to be shipped by rail to destinations in Mexico and California. We are not solely reliant on area feed yards and ethanol plants to consume this abundant crop.
Most importantly, I ask that you call us if you have questions about basis levels and prices. Our staff is here to help you make decisions and provide transparent information regarding what we are seeing in the market. Ask for Janet or Ben at Goodland – Roger at Oakley – or Larry at Quinter.