2017 Fall Farm Outlook

Page 24 Oct. 25, 2017 2017 Logan County Fall Farm Outlook Magazine LINCOLN DAILY NEWS I n the agricultural industry the word “basis” is used daily when planning when to sell a crop to gain the most profit. While many may be able to understand and interpret basis in their minds and on paper, being able to explain it out loud can be more challenging. The foundation of basis comes from the mathematical equation of Current Cash Price minus Chicago Board of Trade (CBOT) commodity futures. Basis can be reported as strong or weak. A weak basis is when the above mathematical formula yields a negative conclusion. A strong basis is when the outcome of the formula yields a positive conclusion. Examples: $3.15 – $3.48 = -.35 In this example, the cash price on October 18, 2017 was $3.15 while the futures price for January 2018 was 3.48. The basis then equaled -.35 or 35 cents under, a weak basis. In another example: $3.15 – $2.78 = +.37 equates to the market being strong. Market Understanding “basis” and how it can improve farm profitability By Nila Smith experts would refer to this as 37 cents over in their reports. But what do the ‘over’ or ‘under’ outcome mean to the farmer? A weak (under) market is an indicator that the supply versus demand is telling buyers that there is more product on hand than will be needed in the near future. Surplus product consequently drives the cash price down. Many times this figure is driven by a ‘prediction’ of upcoming harvest figures. The futures will stay higher, but can also drop if and when it is discovered that the prediction was correct. If the futures price begins to fall at a rate that exceeds the decline in the cash price, then market analysts will designate the scenario as “weak and narrowing.” Continued ►►