Melvin Brees
Farm Management Specialist
University of Missouri Extension




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September 3, 1999

Weak Basis

Basis is the difference between local cash prices and the nearby month futures price. Basis reflects cash demand and is influenced by a number of factors: supply, interest rates, storage costs, transportation costs, etc. The large grain supplies along with tight storage and changing buying patterns of some users have resulted in a much weaker than normal basis during the past year for grains.

Central Missouri corn basis is usually the weakest (difference between cash and futures price wide) at harvest time with cash prices about fifteen cents under December futures price. Following harvest, basis usually begins to improve (strengthen) and has averaged about ten cents under nearby futures in recent years. Last fall basis fell to minus forty cents, or more, at Central Missouri locations. It recovered in mid-winter to about twenty cents under the nearby futures. However, it failed to strengthen further and began weakening again in late spring. For the crop marketing year, Central Missouri corn basis has averaged nearly twenty-five cents under the nearby futures compared to ten cents under in recent years. Weak basis has decreased cash bids fifteen cents per bushel, or more, on top of already low futures prices!

A similar situation occurred in soybeans. Normally, Central Missouri soybean basis averages about thirty cents under futures at harvest and then recovers to about twenty cents under after harvest pressure is past. Last fall it averaged about forty cents under during harvest and made a slow recovery approaching twenty-five cents under nearby futures by late winter. However, soybean basis also began to weaken in the spring and has approached forty cents under futures prices recently. Central Missouri soybean basis has averaged about twenty-two cents under nearby futures in recent years. In 1998 it averaged minus thirty-two cents. Weak basis has reduced cash soybean prices by ten cents or more!

This weak basis also explains why cash prices haven't improved much in response to recent gains in futures prices. Basis has continued to weaken even though futures prices strengthened. This has limited opportunities for cleaning up sales of any remaining old crop still on hand or contracting of new crop that needs to move at harvest.

It is important to understand that, in spite of a weaker than average basis, there were still opportunities during the year. Corn basis strengthened nearly twenty cents and soybeans nearly ten cents form harvest lows into winter. These gains along with late fall futures price strength would have provided very good returns to short term storage. This illustrates the importance of basis to making storage decisions and the timing of cash sales.

The weak basis reflects weak demand. The market has been saying that it doesn't need large supplies of cash grain right now. Cash demand (and basis) may or may not improve anytime soon, but weak basis suggests that this is not a good time to be making cash sales.

-- Melvin

University of Missouri ExtensionDecisive Marketing - September 3, 1999 -- Revised: April 20, 2004