Melvin Brees
Farm Management Specialist
University of Missouri Extension




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September 15, 2000

Basis and Carry--Market Signals

Basis (amount cash price differs from futures price) and market carry (premium for deferred month futures) provide market signals for making storage decisions. A weak (wide discount from futures) basis suggests weak cash demand and a signal that the market doesn't want grain delivered at this time. Market carry represents what the market is offering to hold (carry) the grain until the distant month. Combing the two can provide an estimate of what the market might pay for storage.

The past couple of years ('98 and '99 crops) have seen unusually weak harvest time corn basis (35 to 40 cents under December futures) followed by a significant strengthening into winter. Central Missouri has seen corn basis gains of 14 to 20 cents, or more, from September-October harvest period to January. In many cases, basis gains more than recovered storage costs for the period.

The same basis pattern may be unfolding again this year. Based on Wednesday's (9-13-00) December corn futures at $1.91 1/2, Central Missouri cash bids were $1.45 to $1.50. These bids represent a current basis of minus 41 to minus 46 cents under December futures. This appears to suggest the potential again for significant basis improvement. One of the locations with the $1.50 current cash bid also posted a January cash bid of $1.74. Based on a March corn futures close of $2.03, this January bid produces a basis of minus 29 cents. This represents a basis gain of 12 cents that one location is already offering based on January delivery.

The March corn contract also offers about 12 cents premium over the December contract (March $2.03 minus December $1.91 1/2). This premium, or market carry, is also reflected in the above January $1.74 cash bid ($1.50 current cash bid plus $0.12 basis gain plus $0.12 market carry equals $1.74). The twenty-four cent gain (basis and carry) could be "locked-in" in a contract for January delivery at this location. Adding in Wednesday's average Missouri LDP of about $0.41 cents, produces a net January corn price of $2.15!

Basis and market carry suggests potential storage return even if the corn is not "locked-in" with a contract. Assuming this year's basis pattern is similar to the last two years, basis could improve twenty-cents or possibly more. Current market carry suggests a twelve-cent premium for storage based on the March futures contract. While failing to "lock-in" the cash contract increases risk, potential basis gain and market carry suggests a potential storage gain of $0.32 ($0.20 potential basis gain plus $0.12 carry). This also leaves open the chance for speculative gains from a post-harvest price recovery in futures prices. It is important to recognize the risk that basis gain might be less, market carry could shrink and futures prices might not recover. However, recent history suggests the potential for significant basis improvement which along with market carry offer the potential for short term storage returns for new crop corn. --Melvin

Note: Missouri Corn and Soybean basis information and history for several Missouri locations, prepared by Joe Parcell, UMC Extension Economist, is available at the following web site:

University of Missouri ExtensionDecisive Marketing - September 15, 2000 -- Revised: April 20, 2004