Bean basis review

By Jon Scheve, Superior Feed Ingredients, LLC 

It is amazing how quick a 2-week weather forecast change can impact corn prices. Friday morning weather reports showed possible rain, so the market was trading lower. Then by midday, precipitation was looking less likely over the next two weeks, and corn values increased 30 cents. This is what a weather market looks like. If you could predict the weather, you could predict corn prices too.

2022 crop marketing recap — Bean basis review 

As the 2022 marketing year ends, I like to review all of my trade decisions to evaluate performance and identify areas of improvement in the future. The following analyzes my bean basis decisions.

For background, my farm in southeast Nebraska is 60 miles from a processing plant and 10 miles from a rail-loading elevator. Due to long lines and increased freight costs during harvest, I built enough on-farm storage 10 years ago to store 100% of my corn and beans to maximize flexibility and profitability.

At harvest I stored 100% of my beans to wait for better basis prices, like I usually do. About one month later, in November, I found an opportunity to set basis on 100% of my beans (picked up on my farm) at a value better than the local processor and rail-loading facility were bidding after all freight costs were considered.

Usually, I struggle to get a positive bean basis bid picked up on my farm. However, due to low yields in my part of the bean belt, I managed to sell +50 against the January futures, which is the best basis I have ever collected on my farm.

The following chart shows the price I sold (red X) compared to the processor and elevator spot bids. Prices include all freight rates for picking up on my farm to easily compare opportunities.

With hindsight it is clear I hit the year’s high for my bean basis. However, at the time of the basis sale it was not a sure thing. There was uncertainty around South America’s upcoming production and how many beans farmers were going to store through winter into early spring. 

Why did you sell?

It came down to the storage cost to hold the beans. With futures at the time around $14.50, it meant the cash value was about $15. With interest rates increasing to 7%, it would cost me over 8 cents per month to keep the beans in storage.

I did think there was a chance basis values could work higher, but I did not think it would be enough to cover the interest cost I would incur each month. Knowing what I know now I am obviously glad I set the basis when I did.

Next week: when and what price I set the futures on my 2022 bean crop.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. 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.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

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