Lock-In Your Basis & Mitigate Risk on New Crop Corn

Market Flurry

Tom’s Take - Tom Guinan, VP of Producer Grain Marketing

It’s in our nature to worry about things. Worrying about the ‘right things’ is a little harder to do. I’d like to take a moment to discuss what I think you should be worried about it. I’ll also give you some ideas on how to mitigate some of the risks associated with these items. 

Let’s start with the most recent USDA World Agricultural Supply and Demand Estimates (WASDE). In the May report, the number that jumps off the page to me is the Ending Stocks for the crop recently planted. We could probably argue about the acre numbers and perhaps even the expected yield. But, then we’d also have to argue about the expected increases in demand. Regardless of how these items change in the coming months, I don’t foresee enough changes to reduce Ending Stocks to a level below 3 billion bushels. For the sake of discussion, let’s assume that is the case. 

Add to that scenario a general reluctance by farmers to price or move much of their remaining Old Crop corn for the time being. Combining these two thoughts is what worries me the most right now. What happens if the majority of the Old Crop corn stored in farm bins doesn’t move until the latter half of July or August, and we see a relatively early harvest? Both seem to have a greater likelihood than normal, right now. 

My concern is not so much about what happens in Chicago, but what happens at the elevator regarding basis levels. If we begin to see a lot of bushels move to town across the industry late this summer followed by a large harvest coming right on the heels of that movement, basis could fall hard. 

So, a couple of thoughts about how to get ahead of that possibility. First, think about how many bushels you’ll need to move to town during harvest, using a conservative yield estimate. Then, look at the current basis level for harvest delivery. What if that basis falls by a dime? Or 15 cents? Or more? How many dollars are you putting at risk by not locking-in your basis now? Why not lock-in some of that basis risk now? 

And while we’re at it, think about adding a Bonus Premium to it at the same time. If you did this, you could get an even better basis for this fall, by giving us an offer for the following year’s crop at very attractive levels, with an expiration date of July 31, 2021. You would know by mid-summer of 2021, if your offer filled or not. With a Bonus Premium, you could get your basis into the minus 30’s range instead of the minus 40’s posted today. Please note that we do these in 5,000 bushel increments. For more detailed information, please contact your local Grain Marketing Advisor.