NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
June 29, 2000
by George Flaskerud, Extension Crops Economist
Basis levels for spring wheat, corn and soybeans in North Dakota are approximating basis levels during calendar years 1998 and 1999. What are the implications for marketing decisions if 1999 basis patterns are repeated?
The analysis that follows is based on monthly averages of the nearby basis at three North Dakota locations: Hunter, Gladstone and Minot. Futures prices on June 19 were used in this analysis.
Basis levels for spring wheat (No.1 and 14 percent protein) during 1998 and 1999 were the lowest (the most negative) of the last 10 years. The situation was the same for corn and soybeans.
At Hunter, the spring wheat basis during May was a negative 28 cents in 1998 and a negative 39 cents in 1999, during September it was a negative 49 cents and a negative 62 cents, and during November it was negative 44 cents and a negative 35 cents.
At Gladstone, the basis during May was a negative 32 cents in 1998 and a negative 46 cents in 1999, during September it was a negative 72 cents and a negative 59 cents, and during November it was a negative 59 cents and a negative 40 cents.
At Minot, the basis during May was a negative 36 cents in 1998 and a negative 44 cents in 1999, during September it was a negative 74 cents and a negative 65 cents, and during November it was a negative 56 cents and a negative 50 cents.
Sales can be planned for particular months by combining information on basis with futures prices and storage costs. In this analysis basis levels for 1999 and for 2000 through mid-June were combined with futures prices on June 19 and with storage costs, which included an annual interest rate of 10 percent.
Months that stood out as good for sales were November/December for Hunter, November for Gladstone and April for Minot. For this analysis to be relevant in the months ahead, there would need to be a repeat of 1999-2000 basis levels and a continuation of the June 19 spread between Minneapolis spring wheat futures prices. In addition, you would need to have high-quality farm-storage facilities.
Plan cash sales for those months. Alternatively, implement hedge sales for delivery during those months using futures fixed elevator contracts and/or put options. Time is running out to make forward sales, but they should still be considered at about $3.60 December. The Minneapolis December contract closed at $3.47 on June 19.
The corn analysis was done only for the Hunter basis. The basis during June was a negative 41 cents in 1998 and a negative 44 cents in 1999, and during October it was a negative 71 cents and a negative 69 cents. The month of June stood out as a good month to make delivery on sales. The emphasis here is more on delivery than sales. The spread in corn futures and basis improvement suggests that sales should be made in the July futures contract using futures fixed elevator contracts and/or put options. Target $2.60 July 2001 futures, which closed at $2.47 on June 19.
The soybean analysis was also done only for the Hunter basis. During 1998 and 1999, the monthly average basis improved after harvest into the end of the year but then remained relatively flat until the approach of the next harvest. This made January about as good a month for sales as June. In this case, I would target $5.60 March 2001 futures, which closed at $5.13 on June 19.
Source: George Flaskerud (701) 231-7377
Editor: Dean Hulse (701) 231-6136