After Harvest Lows Soybean Basis Rebound Remains Lackluster

The basis lows were printed in the last week of September for both corn and soybeans on average throughout the nation. In just the last week, the national average basis for soybeans improved nearly a cent while corn basis continued climbing, up another 1 1/3 cents on the week. Despite the steady basis improvements observed since the harvest low, soybeans have not experienced the violent snapback in basis that it enjoyed during the same period last year. In 2011 the national soybean basis average improved 14 cents in the two weeks following harvest lows. This year, soybeans has improved a lackluster 3 ½ cents during the same period.

The slow basis improvement seen in soybeans this year could be caused by a number of abnormal events. First, going into harvest we had exceptional backwardation in the futures market. At one point there was almost a two dollar discount for Soybeans delivered July 2013 compared to beans delivered this November. This sort of futures market structure gives farmers incentive to sell beans directly off the combine, and probably played a role amplifying bean sales during this year’s harvest. However, since the height of the backwardation the cash market has adjusted and now provides, on average, a 7 cent carry from spot to Nov, a 5 1/3 cent carry from Nov to Dec and a 2 cent carry from Dec to Jan. The current cash structure should help support further spot basis improvement. Secondly, there is a chance that the soybean basis recovery has been muted as a result of improving yield expectations during this year’s harvest. Recently, we have seen multiple private analysts increase their soybean yield forecasts, and on October 11th we saw confirmation when the USDA raised their official yield forecast from 35.3 to 37.8 bushels per acre.

Across the US:
Soybean basis seemed mixed across the different facility types last week with soybean plants improving their basis by 1 ½ cents, while basis along the river dropped 2 1/8th cents. The gulf remained unchanged.
The increase we observed in corn basis was supported by a one cent increase out of both ethanol plants and the gulf. Despite the slight improvement in corn basis out of the gulf, river terminals remained unchanged as a result of slightly stronger barge rates. Since harvest lows corn has increased 3 ¾ cents, on par with the rate of improvement we observed last year during the same time period.

Harvest Analysis:
We see spot soybean basis improving this week as the upper Midwest finishes harvest. North Dakota went from 93% to 98% harvested in the past week, South Dakota from 94% to 98%, and Minnesota from 95% to 99% harvested. The Dakotas were about 10% ahead of last year’s pace for the week of October 14th. We see weaker basis in the East and Southeast, which may be due to double crop and harvest pressure. Kentucky’s harvested beans went from 34% to 42% last week, Missouri from 20% to 36%, and Tennessee from 24% to 33%. These Southeastern states seem to be just about on par with average percent harvested for the area this time of year.