2019 Spring Farm Outlook

Page 30 2019 Logan County Farm Outlook Magazine Lincoln Daily News March 21, 2019 crops and improve profitability… Basis can also help provide a signal as to who their customers are and if demand is growing or shrinking.” When the cash basis is narrow or shrinking, the market “wants” your grain. Such a change often happens “right after the crop has been put away, or in spring when everyone is busy in the field and no one is making cash grain sales,” writes Kuis. A broadening cash basis means holding on to grain a little longer. Kuis adds that “if you’re a farmer who understands merchandising, you make two decisions when you price your grain. One is choosing the futures price that you are satisfied with and the other is locking in the basis level.” Basis contracts are different from price-later contracts. The difference comes from when the basis is established; either when the contract is signed up front, versus when the grain is delivered to the buyer. Three factors make up basis for grain. The first is the cost of transportation. Barge and rail rates change all the time, which affects the basis. Costs of transportation will change depending on things like time of year and overall climate. The second factor is the cost and availability of necessary storage. If elevators run out of storage space, they may have to increase their basis to avoid storing more grain in piles outside. If a large crop results in less available space, the basis will also widen. The third factor is the relative price level of grain at a given time. If grain futures rally, it becomes harder for basis levels to improve. When a crop is larger and futures are low, basis levels are less likely to stay wide for very long. The question becomes; how can you use basis when making financial decisions? First, be aware of what the basis is in the local area. Talk to people like elevator managers and grain brokers, who can help you understand the area better in economic terms. Second, learn when basis levels are likely to be lousy, and when they’re likely to be good. Third, avoid harvest sales whenever possible. Sales made right out of the field are usually made at the worst basis, and you probably won’t be able to make it back in the futures or options markets. Finally, watch the futures market and any higher bids for future delivery in the market. Continue 8