April 24, 2000
SLIGHT IMPROVEMENT IN CORN AND SOYBEAN BASIS
The average cash price of corn in
central Illinois on April 20 was $2.10 per bushel. That price
was $.2575 under July 2000 futures. The July basis has strengthened
about $.14 since mid-January and $.05 since the first of April.
The basis improvement since mid-January has occurred in spite
of a $.02 increase in the May to July futures spread.
The July corn basis in central Illinois
is still weak by historic standards, even weaker than last year's
relatively poor performance. On the same date last year, the average
basis was $-.20. In 1998 and 1997, the basis in late April averaged
$-.15 and $-.12, respectively. Typically, the basis in central
Illinois is strongest in May, averaging $-.09 in 1998 and $-.06
in 1997. Last year, the basis only improved to $-.17 before weakening
to $-.24 near expiration of the July futures contract.
Some additional improvement in the
July basis over the next month should be expected. Corn consumption
is continuing at a relatively high pace and producers are holding
fairly tightly to old crop supplies as they plant the new crop
and wait to see which way the weather market goes. If the weather
pattern favors a good start to the 2000 crop, producers will start
moving old crop supplies and basis improvement will be small.
Often times, producers hold large supplies of the old crop into
the summer months in anticipation of a late weather market. If
one does not develop, rapid pre-harvest movement of old crop supplies
pressures the basis during July and August.
The average central Illinois bid
for harvest delivery of new crop corn on April 20 was $2.25. That
price was $.2875 under December 2000 futures. The new crop basis
is also weak for this time of year. Last year the new crop basis
on the same date averaged $-.255. For the three previous years,
the basis was $-.19, $-.19, and $-.17, respectively. Typically,
the new crop basis makes a gradual, but small improvement into
late summer, with actual harvest time basis varying considerably.
Last year, the basis weakened into August, averaging about $-.34,
and then strengthened normally into December, finishing at about
$-.06. The new crop basis pattern during the upcoming growing
season will likely follow crop prospects. Prospects for another
large crop will keep basis on the weak side, while weather concerns
would allow for some strengthening of the basis.
The average cash price of soybeans
in central Illinois on April 20 was $5.125. That price was $.365
under July futures. The July basis has strengthened only about
$.04 since late January. Most of that small improvement occurred
in March. Like corn, the current July soybean basis is unusually
weak for this time of year. The average basis was $-.28 last year,
$-.08 in 1998, $-.14
in 1997, and $-.24 in 1996. July basis is typically the strongest
in May and early June. That was also the case last year, but the
basis only strengthened to about $-.17 before weakening into July.
Typically, the basis in May and early June is near $-.05.
There is potential for some further
improvement in old crop basis due to a high rate of consumption
and tight farmer holding. In spite of a high rate of use, this
is the time of year when South American supplies result in a seasonal
decline in consumption of U.S. soybeans. With an additional 1
million acres of soybeans expected to be planted in the U.S. this
year, favorable yield prospects would keep old crop basis on the
weak side. Worries about low yields would likely result in a more
significant strengthening of the old crop basis.
The average central Illinois bid
for harvest delivery of new crop soybeans on April 20 was $5.33.
That price was $.285 under November 2000 futures. That basis was
$-.27 on the same date last year, $-.21 in 1998, $-.20 in 1997,
and $-.24 in 1996. Typically, the new crop basis strengthens slightly
into late summer, becomes volatile at harvest, and strengthens
into November. Last year, the basis weakened to about $-.35 in
mid-August, narrowed to only $-.26 in September, widened to $-.34
in October, and narrowed to only $-.14 near expiration of November
There is potential for some modest
strengthening of the new crop soybean basis from current levels.
Unless crop problems develop, however, that basis will likely
remain on the weak side.
The current weak basis levels have
implications for pricing decisions. For old crop supplies held
on the farm, producers might want to consider hedging or hedged-to-arrive
contracts for any sales that are made near term. That strategy
would capture basis improvement into May or early June. For new
crop sales, the weak basis implies that producers want to avoid
cash sales for harvest delivery. Futures or hedged-to-arrive contracts
would allow producers to capture post harvest basis improvement,
which could be significant again this year. For those who prefer
cash contracts, January 2001 bids may offer a higher net price
than harvest bids. With prices below the loan rate, large new
crop soybean sales still do not appear attractive.
Issued by Darrel
University of Illinois