Get To Know Your Local Basis—A Key Influence On Your Cash Grain Price

By Tracy Sayler

November traditionally brings an improved local basis for spring wheat, and thus a better opportunity for making wheat sales.  NDSU extension economist George Flaskerud expects the local spring wheat basis to improve by about 15 to 20 cents from harvest into November, with bigger gains limited if exports don’t improve.  Basis for corn and soybeans look to trend close to average, as reflected in the charts.

Basis is simply the difference between cash and futures prices. For example, if the Minneapolis September spring wheat futures contract is $3.75 per bushel and the price offered at the local elevator is $3.50 per bushel, the basis is 25 cents per bushel under the September. 

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.  The basis will usually be larger (more negative) during harvest, because of the larger supply of grain compared to demand. On the other hand, the basis is usually smaller (more positive) during spring planting because farmers are not hauling their grain; thus the supply is low compared to demand.

With grain stocks and the demand for storage high at harvest, cash prices are often at their largest discount to the futures at this time. As the crop is put away and some is used, the supply of storage increases relative to demand for its use, and the basis narrows. A 3-5-year local basis history, using daily or weekly data, can help producers make selling decisions.

For example, you can lock in the basis any time by signing a basis fixed contract guaranteeing so many bushels will be delivered by a specific date.  Locking in the current basis and a future’s quote later is similar to cash forward contracting.

On the other hand, the basis typically weakens for short-term delivery during harvest, signaling that you are better off not selling cash grain at that time.  However, perhaps your local price has a 15-cent basis “carry” from August until December. That means basis for December is 15 cents higher than the basis in August, signaling a better price for delivery in December.

Crop producers in North Dakota and Minnesota can find local basis information online at www.smallgrains.org. Under Market Updates, click on “Market Quotes and Charts,” then scroll down and click on “Local Basis Information.”

Basis online

Basis for Selected ND Crops Publication (Excellent basis backgrounder):
www.ext.nodak.edu/extpubs/agecon/market/ec1011.pdf

NDSU historical basis charts:
www.ag.ndsu.nodak.edu/aginfo/cropmkt/analysis/Ec-1011pr.pdf

SDSU Grain Market Info: Click on corn, soybean, wheat links, then scroll down and click on cash price and basis charts
http://econ.sdstate.edu/Extension/CMA.htm

U of M basis charts for selected MN locations:
www.cffm.umn.edu/Marketing/

National Ag Risk Library.  Click on “Ag Risk Library,” then scroll down and click on “basis” or “basis contracts.”
www.agrisk.umn.edu/

Texas Extension Basis Project
http://jenann.tamu.edu/resources/basis/

Basis Implications Expected Change Futures Basis Alternatives Increase Strengthen Storage Delayed Price Contract Put Options Increase Weaken Basis Contract Minimum Price Contract Sell & Buy Futures/Calls Decrease Strengthen Hedge-To-Arrive Contracts Hedge Put Options Decrease Weaken Cash Sales Cash Forward Contracts