Grain Market Report
May 16, 2016 Leave a comment
Grain Markets 5/16/16 @ 10:39am
July Corn 0’0 @ 3.90’6
July Beans -5’0@10.60’0
Corn – Weather uncertainty and temps falling below 30 degrees in North Dakota over the weekend and heavy rains for portions of the Midwest this week is supportive for corn
Beans – nearby struggling on the board of trade, while new crop January beans are up. It seems there is some additional weather premium being added to new crop beans as we see the spreads improve. (For obvious reasons old crop in the bin is less impacted by weather premiums). The bean market is currently inverted, however the spread is narrowing.
Sneak Peak of my Blog to be posted on www.cvacoop.com
The Power of Basis
Grain markets have been very exciting since early March. Well I guess I should say Soybeans have been very exciting. With July beans seeing $2.295 rally since March 2nd. That’s easy to get excited about, until you called for a cash bid and found the cash price to be only up slightly from the previous bid. Why is this? I want to talk specifically about processors. Understanding that processors are the final stop for your grain, it stands to reason why they “set the market.”
The function of basis is to act as the knob on a faucet. The market goes up, grain starts to move and the processor needs to slow down the flow. So what do they do? Turn down the faucet (IE Basis). On the contrary, if farmers are not moving enough grain to keep the processor at production levels they are forced to pay more and turn up the faucet.
Another consideration is a simple function of business. If the market rallies $1.00, the processor would consider it good business to keep a percentage of the rally as profit. For example 5/10/16 the USDA report was released and the market rallied. Cash bean prices shot up and processors quickly adjusted basis downward. This is a consideration when marketing. The chart below gives actual basis numbers and how they responded to the futures market. Look specifically at USDA report day 5/10/16.
Sioux City Bean Processor | |||
Date | Futures Average | May Basis | Spot bid |
3/1/2016 | $8.62 | -$0.33 | $8.21 |
4/1/2016 | $9.14 | -$0.43 | $8.67 |
5/6/2016 | $10.15 | -$0.73 | $9.46 |
5/9/2016 | $10.31 | -$0.73 | $9.58 |
5/10/2016 | $10.57 | -$0.80 | $9.77 |
Cash Price = Futures + Basis
So there are two risk factors to consider when pricing your grain. Futures and basis both are factors. Since they are usually inversely related, basis is often times best locked in when market prices are down and visa versa..
Greg Mockenhaupt
ProEdge Risk Management Consultant
P: (402) 685-5613 | Greg.Mockenhaupt@cvacoop.com
1007 County Road O
Oakland, NE 68045
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