Harvest dip: Seasonal low for corn basis may still be ahead

WEST LAFAYETTE, Ind. — As harvest gets underway, basis has broadly weakened — with declines since the start of September as large as 25 cents per bushel for corn and 43 cents per bushel for soybeans.

But where basis stands compared with recent years tells a more interesting story, said Josh Strine, postdoctoral research assistant and agricultural economist at the Center for Commercial Agriculture at Purdue University.

Basis is the difference between the futures price and the local cash price, a way over time to see clear marketing signals.

Corn

“Against December futures, the strongest corn basis in the region is in central Indiana and Ohio. Across most of Indiana, Ohio and Michigan, local basis levels are above their three-year averages,” Strine said.

“Strength in the eastern part of the region marks the shift from the historical pattern, in which basis was strongest in late September in northern and western Iowa.

“This year, Iowa and Illinois are on the weak side. In southeast Iowa, corn basis is the lowest on record for this time of year.”

Production is part of the story, Strine said.

“The USDA has forecast corn production in Iowa to increase for a fourth straight year, consistent with the state’s weaker basis,” he said.

“Indiana and Michigan are expected to produce less than last year, consistent with their stronger basis.

“Ohio is the exception, with a larger crop and a strong basis supported by ethanol plants bidding well above normal.”

Harvest timing matters, too.

“Illinois is ahead of its normal pace and has seen some of the largest basis decreases. Southeast Illinois recorded the largest decline in the region,” Strine said.

“Additional declines in southern Indiana coincide with basis falling along the Ohio River, where it has reached the lowest level on record for this time of year.”

Basis hasn’t weakened everywhere.

“In Iowa, basis strengthened across all districts led by northwest Iowa,” Strine said.

Soybeans

The harvest dip for soybeans has spread across nearly the entire region. Only two districts gained ground over the past four weeks.

The largest decline occurred in east-central Iowa.

“Even with recent weakening, soybean basis remains above its historical average almost everywhere,” Strine said.

“Only three districts are below the average. That stands out because soybean production is forecasted to be above average in all five states.”

Demand appears to be supporting the soybean basis.

“Soybean processors in Ohio and Iowa are posting their strongest basis on record for this time of year, with bids above November futures in both states,” Strine said.

Outlook

Basis isn’t the only factor affecting cash prices.

“December corn futures are more than $1 above where they were at this time last year. In November, soybeans are more than $3 higher,” Strine said. “Even where basis is weaker than usual, those higher futures help support local cash prices.”

Looking ahead, the economist said, expect more volatility.

“Recent research from farmdoc daily finds that corn basis typically bottoms in mid-October, around the time harvest is half done,” he said. “With harvest still early, the corn basis low may still be ahead.

“For soybeans, historical trends suggest many districts may already have hit their seasonal low and could begin to recover into October. However, a delayed soybean harvest may keep basis levels suppressed.”