Advertise in Print | Subscriptions
Published January 24, 2008, 12:00 AM

Watch basis levels to know crop prices

For years one of the primary tenets of marketing has been to pay attention to basis levels because they can make a big difference in the price you receive for your crops that have a basis. You have to have a futures market to have basis because the basis is the difference between the cash price and the futures. It was not uncommon to have 20- to 30-cent changes in the basis. That was a lot when corn was below $2 a bushel and wheat was below $4 a bushel and soybeans were around $5 a bushel. It isn’t a lot any more.

By: Mike Krueger, The Jamestown Sun

For years one of the primary tenets of marketing has been to pay attention to basis levels because they can make a big difference in the price you receive for your crops that have a basis. You have to have a futures market to have basis because the basis is the difference between the cash price and the futures. It was not uncommon to have 20- to 30-cent changes in the basis. That was a lot when corn was below $2 a bushel and wheat was below $4 a bushel and soybeans were around $5 a bushel. It isn’t a lot any more.

Cash prices for every commodity are at or near the highest levels in history. The cash price for wheat is more than $10 a bushel. Corn is more than $4 a bushel and soybeans are more than $11 a bushel. Many producers who have become good students of basis over the years are still trying to use the basis as a barometer of when to sell their crops.

I’m not sure we can use the same old basis rules in this new market environment. We’re seeing futures markets move 30 to 40 cents a day on some of the wild days. That makes trying to outguess a 10- or 20-cent move in the basis kind of meaningless. Basis just isn’t as important when cash prices are at these lofty levels. Some producers complain that basis levels have stayed weak to some historical standards. That might be true, but that doesn’t mean the basis has to get any better for several reasons. Everyone along the food chain is taking wider margins with these high prices. It is simply easier to widen margins when prices are high than when they’re low.

Basis levels are not as important as they used to be.

Krueger is the host of “The Money Farm,” a

syndicated radio and television program on

grain marketing and is a licensed commodity

broker. He can be reached by e-mail at

mike@themoneyfarm.com.

Tags: