Posted by: usset001 | September 1, 2010

The spring wheat basis remains wide

Since 1990, the average basis for spring wheat in the Red River Valley in late August (harvest) is about 30 cents under the September (new crop) contract. Wheat is currently trading at 80-100 cents under. The widest basis I can find prior to this year was 60-70 under in 2007.

The wheat basis is wide because of a combination of factors; a very large carryover of wheat from 2009, an early and large 2010 harvest, a less punitive protein discount, and above all (in my opinion) high futures prices that put a smile on every producers face as they sell grain at some very nice price levels, despite a poor basis.

Problems in Eastern Europe have led to a surge in exports out of the Great Lakes. At the same time, wheat is so cheap (in terms of basis) that I am hearing of elevators who are piling wheat on the ground in the Red River Valley and in Duluth/Superior. And you thought outdoors piles were for corn only.

There were about 950 contracts delivered against the September contract on the first day. With 14% protein spring wheat available for about 30 under, delivered Minneapolis/St. Paul by truck, there ought to be an opportunity for delivery elevators to deliver more grain at option price. However, elevators are reluctant to wrap up space playing delivery games when they can continue to buy wheat, blend and resell for even better margins. Tie up space with delivery? Not now!


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