"Futures prices for both crops are also now below the likely
spring price guarantee for crop revenue insurance products,"
said Darrel Good. "Aggressively pricing the 2009 crops at prices
below the crop insurance guarantee may not be prudent this early
in the season."
Good's comments came as he reviewed corn and
soybean basis risk. For much of 2007 and 2008, corn and soybean
basis levels in Illinois and many other producing regions were
"Problems with lack of convergence of cash and futures prices
at delivery markets during periods of futures contract maturity
were widespread," he said. "Currently, basis levels are quite
strong in most markets, and convergence appears likely as the
March 2009 futures contracts mature."
On Feb. 20, 2008, the average spot cash price of corn at
interior country elevators in central Illinois was 26.5 cents
under March 2008 futures. On Feb. 20 this year, the average spot
cash price in those same markets was reported at 11 cents under
March 2009 futures, a level that was typical for this time of
year prior to 2007.
Similarly, the average spot basis at Illinois River locations
north of Peoria was reported at minus 29 cents on Feb. 20, 2008,
and minus 1 cent on Feb. 20 of this year. Basis at central
Illinois processing plants was reported at minus 10 cents and
minus 7 cents on those two dates, respectively.
"The year-over-year change in the soybean basis has been even
more dramatic," said Good. "The average central Illinois spot
basis at interior country elevators was minus 58 cents on Feb.
20, 2008, and minus 9 cents on Feb. 20, 2009.
"The average basis at Illinois River points north of Peoria
was minus 48 cents and plus 9 cents on those two dates,
respectively. Finally, the average central Illinois processor
basis was minus 42 cents on Feb. 20 last year and plus 15 cents
on Feb. 20 this year."
A number of factors may be contributing to the much stronger
corn and soybean basis levels this year compared with last year,
"Lower price levels reduce the cost of owning and storing
crops, and lower fuel prices reduce the cost of transportation,"
he said. "A rapid pace of soybean exports and generally tight
holding of both corn and soybeans by producers as prices have
declined may also contribute to the strong basis.
"Improving operating margins for grain merchandisers, as the
financial pressure of buying and storing high-priced crops and
meeting margin calls on the short hedge positions have subsided,
may be another contributing factor."
Basis for harvest 2009 delivery of corn and soybeans remains
generally weak, averaging about minus 48 cents and minus 57
cents for corn and soybeans, respectively, in central Illinois
on Feb. 20 this year. Weaker new crop bids reflect the lack of
urgency to acquire new crop sales from producers and the
financial risk of short hedging of new crop purchases.
[to top of second column]
"The strong old crop basis may have marketing implications for
producers with unpriced inventory of 2008 crop corn and soybeans,"
he said. "The strong soybean basis and relatively small spread from
March 2009 to July 2009 futures imply that the soybean market is
offering a very small premium for continuing to store old crop
"Improvement in basis over the next few months is unlikely to
cover the cost of storing the soybean crop, with interest costs
alone approaching about 4 cents per month. Under that scenario, the
only potential for a return to storage is through higher futures
prices. The soybean market, then, is encouraging producers to sell
old crop inventories."
Any speculation on higher prices could be accomplished through
the purchase of futures contracts or the use of basis contracts, he
"Continuing negative general economic news, stabilization of the
South American crop and prospects for an increase in soybean acreage
in the United States in 2009 may make a price recovery difficult,
however, in the near term," he said.
The corn market shows a little more carry than the soybean
market, providing some prospects for a small return to storage if
basis remains strong. With reports of unusually large inventories of
farmer-owned corn, however, there is risk of a weakening of the
basis if farmer sales accelerate rapidly in anticipation of another
large crop in 2009.
"Prospects for the price level of old crop corn are not quite as
negative due to an acceleration of export sales, ongoing increases
in ethanol use of corn and anticipation that the March 31 USDA
Prospective Plantings report will reveal intentions to reduce, or at
least not increase, corn acreage in the United States in 2009," Good
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental