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Keep an Eye on Local Basis Levels, Discount Schedules

Keep an Eye on Local Basis Levels, Discount Schedules

Cash markets will change as more information emerges about the quality of the U.S. corn crop, says NDSU marketing specialist.

Watch your local basis levels and discount schedules closely because they likely will change as more information about the quality of the U.S. corn crop becomes available, says Frayne Olson, NDSU crops marketing specialist.

Because of the current reports of test weight and disease concerns in the eastern Corn Belt, it is likely that normal corn movement patterns will shift. Higher-quality corn will be pulled into those regions with quality problems to be blended with the lower-quality corn or to replace the lower-quality corn. The basis and quality discounts within these problem areas likely will increase because of the added cost of transportation and blending or the cost of moving the lower-quality corn into alternative markets.

If your area is experiencing significant quality problems, the simplest marketing strategy is to put your corn into storage on the farm, Olson says.

Don't let the crop quality deteriorate any further, and allow the cash market to adjust to the new conditions.

During the peak of harvest, elevators and processors must receive and dry corn as quickly as possible to prevent long lines and harvest delays. As a result, many elevators and processors build in additional margins because of the risks concerning crop quality, inability to ship or use the grain as fast as it is being delivered and the potential for more grain deterioration during commercial storage. These additional margins typically decrease after harvest.

A futures fixed contract, also called a hedge-to-arrive contract, is a viable alternative if there is a rally in the futures market that provides a good pricing opportunity but it occurs before the local basis recovers. A futures fixed contract allows the seller to lock in the futures market price without locking in the basis until the grain is delivered.

If your area has good- to excellent-quality corn, the local basis likely will improve quickly after the harvest is completed and will remain strong for the remainder of the marketing year, Olson says.

The final destination and use of the corn may be different from previous years, but the demand for good-quality grain should remain relatively strong. Any price rallies in the futures markets should be reflected in the local cash market.

Source: NDSU Agriculture Communication

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