By Jon Scheve, Superior Feed Ingredients, LLC
The December USDA report is arguably the least important of the 15 reports released each year for corn and beans because there are rarely any changes made to U.S. balance sheets. This year was no different. The market will now be anticipating the January report, one of the three most important reports of the year, for price direction. South American weather conditions over the next month will also be a potential market driver.
Last week I mentioned I set prices on 40% of my 2021 production and I was asked if they were futures or cash sales. That was a great question. They are futures sales only that did not include any basis values.
I prefer to focus on futures separately because the cash price includes the basis level. I will eventually trade the basis level separately too, so I won’t know my cash price (i.e., futures + basis values) until after both are set.
I trade futures and basis separately, because they both trade independently of each other and do not hit their highs at the same time. Each one is its own market dynamics and the high in each can be achieved several weeks or months after the other. Some years basis will hit its high before futures and other years the opposite will happen.
Many farmers unfortunately only focus on the cash value; however, this approach can leave money on the table. Basis has its own market and seasonal patterns impacted more by local market supply and demand needs, which can move values 20 to 40 cents during the marketing year. Futures prices are more affected by the entire U.S. and global supply and demand.
To maximize profit potential farmers should have a marketing plan that separates the basis market from futures prices.
Please email firstname.lastname@example.org with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
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