2017 Fall Farm Outlook

Page 26 Oct. 25, 2017 2017 Logan County Fall Farm Outlook Magazine LINCOLN DAILY NEWS At the same time, the Wabash Region is high in pork production, meaning there are more producers who will feed their harvest to livestock, meaning there is possibly less corn for sale at local elevators, creating a sense that demand in the region outweighs the supply. Looking back at the same region on August 2nd, Wabash cash corn was much higher than it is in October at $3.47 - $3.62. This is important because, the cash price is dropping as harvest gets underway; an indication that perhaps crops are yielding better than originally predicted. But what did all this mean for the basis? In August the futures price on the 2nd was $3.71, so the regional basis for Wabash was only -.24 to -.09 or on the average -.165; very narrow. On October 18th that basis ‘widened’ from an average of -.165 to an average of -.295, an indication that supply is approaching demand within the region. Generally speaking, any circumstance that impacts the price of a commodity will also impact the basis. This can be anything from weather conditions starting right before planting season all the way through to harvest; availability of transportation such as trucking, rail car or barge; and the cost of transportation. Of course yields at harvest impact the price as well. Savvy marketers will use this information to map out the market trends throughout the year, and over time will be able to predict widening and narrowing of basis by watching the subtle daily shifts. According to a publication issued by the Chicago Board of Trade, understanding basis and using it can turn less than perfect years into profitable ones through hedging on the CBOT with futures, but also through making wise choices on when to store or sell on the cash market. That document reports the following: Knowing the usual basis and basis pattern for the commodities you buy or sell will help you make more informed decisions about: Whether to accept or reject a given price Using historical basis information, is a particular cash bid or offer attractive? Or would you be better off hedging your price risks and waiting for the basis to improve? Continued ►►