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Corn+Soybean Digest

Still a Basis Bull | Stocks Continue to Remain Tight Through Current Marketing Year

I am still a basis bull.

USDA reports confirm a poor corn crop. Relative to trend-line yield expectations, I consider 2012 one of the five worst years in the last century. We started the current crop year with the lowest corn supply in a decade. On the demand side, something has to give, and the pace of exports has plummeted. But feed and ethanol demand is surprisingly resilient. The net result is a projection for even tighter ending corn stocks by next summer.

Time for more bold predictions

In southwest Minnesota, basis for corn in October was 15-25¢ under the December contract. That is as strong as any year since 1990. Can basis repeat 2012, and reach 50¢ over the July contract by next summer? With ending stocks forecast at fewer than three weeks’ usage, I think it will happen. By the way, the last time ending stocks in corn were below three weeks’ usage was during the 1995-1996 crop year. Corn basis reached 100+¢ over – a record high for Minnesota – in summer 1996.

How about soybeans? USDA raised U.S. average yields by 2.5 bu./acre in the October report. Despite the upward adjustment, 2012 will be one of the five worst crops since 1960, relative to yield expectations. Relative to usage, ending soybean stocks are projected at levels as tight as any year in the past half century. Is a positive basis in the cards next summer? I expect it.

Two basis items to consider

First, basis “overs” are not common in southwestern Minnesota. I can find just three years since 1990 when the corn basis was positive (four years in soybeans). They may be more common in your corner of the Corn Belt. You need to adjust my figures for a definition of a normal or strong basis in your area.

Second, positive basis goes hand-in-hand with erratic basis. Short-term basis swings of 20¢ or more can be expected. Got unpriced grain in storage? Be ready to pull the trigger if basis swings your way.

Stocks will remain tight through the current marketing year. I remain a basis bull.

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