Posted by: usset001 | October 28, 2010

The spring wheat basis is showing serious improvement

The spring wheat basis is showing some life. Bids of 55-65 cents under the Minneapolis December contract are now fairly common in and around the Red River Valley.

(How did I survive before the wonderful quote services offered by CashGrainBids.com?)

On the first day of September, I lamented in my blog about a record wide spring wheat basis, up and down the Red River Valley (northeast North Dakota and northwest Minnesota). For two full months – August and September – the nearby spring wheat basis ranged from 100-130 cents under. Prior to this year, the widest basis I could find on record was 60-70 under in August of 2007. The norm – if there is such a thing – is somewhere around 30-40 cents under the Minneapolis September futures contract at the start of harvest.

High futures and a poor basis led me to a post-harvest strategy of selling the carry at harvest. This involves storing cash wheat at harvest and selling a deferred futures contract (December, March or May). This strategy buys time for the basis to heal. My original aim of 25 cents under the December contract by late fall is probably too ambitious, but even 50 under makes it a wildly successful strategy.

Will the strength continue? Will the spring wheat basis return to more “normal” levels this winter (10 cents under the March contract)? I think it is a distinct possibility. Stay tuned.


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