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Issue 31 |
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Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc. and the Minnesota Barley Growers Association. |
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Follow the basis, and market accordingly A knowledge of the basis is important for effective marketing. It can enable a producer to make more profitable cash sales and to make better use of other marketing tools. The basis can also be used along with the futures market to make farm-level price projections. Basis is the relationship between the local cash price and a futures contract price for a commodity. It is calculated as the cash price minus the futures price. In the Northern Plains, the basis is usually negative for most commodities, so it is described as being a number of cents under a particular futures contract price. If it is positive, it is described as being over the futures contract price. For example, say your local elevator price on a particular day is $3.00 per bushel, and the Minneapolis September spring wheat futures price that same day is $3.25 per bushel. Thus, your local basis is 25 cents per bushel under the Mpls. Sept. contract (minus 25, or 25 under.) Transportation and local supply and demand influence basis levels. Knowing when your local basis is stronger and weaker can help you time grain sales and select appropriate marketing tools. For example, if the futures price is expected to increase and your local basis to strengthen—a scenario expected from harvest into November for wheat—then the best marketing alternatives to consider are short-term storage, a delayed price contract, or a put option. "The basis for wheat is generally expected to strengthen going into November. Watch carefully because sometimes it may not last more than a week," says George Flaskerud, NDSU extension crops economist. "I think the best we could see this fall is a 20-cent increase in the wheat basis from harvest, which would still be significant." The basis is seasonally weakest at harvest, as indicated by the patterns in these basis charts for wheat, corn, and soybeans for Hunter, ND (about 40 miles northwest of Fargo) in the last decade. The charts indicate the difference between the local cash price and the closest (nearby) futures price. The local elevator, extension service, and commercial market advisors are resources for historical basis patterns in your area. For a more detailed backgrounder on the basis, see last year's Prairie Grains Marketing Guide online, www.smallgrains.org/springwh/MGuide99/Sales/sales.htm. For more basics on the basis, get NDSU Bulletin EC-1011 "Basis For Selected North Dakota Crops," available through county extension offices or by contacting the NDSU Extension Distribution Center, ph. 701-231-7882. Hunter #1, 14 Pre Wheat Basis Relative to Nearby Mpls Futures
Hunter #2 Corn Basis Relative to Nearby CBOT Futures
Hunter #1 Soybeans Basis Relative to Nearby CBOT Futures
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