Highlights, Fall Delivery Basis, Rain Days Update 8/7/22

Wright Team
Aug 7, 2022
4 min read

Time to Make Decisions About Fall Delivery Basis

If you know you will have to deliver corn or beans during harvest, you need to make the decision this week whether to set the basis now for fall delivery or roll the dice. Well, actually, if you do not set the fall delivery basis, that decision has better odds of being correct than rolling the dice.

First of all, why is this week the week to decide on fall delivery basis?

By this week, you have a pretty good idea of what kind of crop you will have and whether you will need to take some to town during harvest. The reason to not set fall delivery basis until now is you just don’t know if you will have to deliver any bushels during harvest. By the first week in August, you have a very good idea of how many bushels you have to deliver this fall. If you set basis and don’t have the bushels, you will have a problem with your merchandiser because basis is a function of delivery period and delivery location. Once the basis is set, your merchandiser is counting on those bushels being there to meet his commitments. With an HTA contract, the basis is open and, therefore, the delivery period is open and usually the delivery location is still open. It can be moved forward or later. There is no reason to have a problem to move the delivery period of a HTA contract.

Just like futures price, no one knows what the basis will be in advance, but there are some pretty good indicators. Especially for fall delivery. Basis is a function of local supply and local demand. If the local demand is more than the local supply, the basis will be positive. If the local demand is less than the local supply, the basis will be negative. You cannot do anything about your area having a positive or negative basis, but you can develop an opinion as whether the basis will be weaker or stronger than normal.

Are the crops in your area going to produce more than normal, less than normal or normal? If less than normal, basis will be firmer than normal.

Is your merchandiser posting a normal basis with less than a normal crop in your area? Wait to set basis.

Is your merchandiser is posting a normal basis with a better than a normal crop in your area? If so, get the basis set now.

Will your harvest period be the same time as everybody else in your community or maybe later or earlier than the crowd? If you can avoid delivering those 10 days of peak harvest you will get 5 to 10 cents firmer basis.

Most farmers have storage for some of their crop. Most farmers will fill up their bins and then take the rest to town just as most farmers in their community do the same, further weakening the basis. If you have bins, but not enough bins to hold all your crop, take those first harvested bushels to town so you can avoid delivering so much during those ten days of peak harvest.

Think about the pace of harvest. Will the harvest be quick because of dry weather or a long drawn out process due to a long planting season and/or a wet harvest season? Or will it be a normal harvest season?

The faster the harvest, the weaker the basis will get, but for a shorter time. If harvest turns into a three-month ordeal, basis may never weaken at all. After all, we use 41 million bushels of corn and 12 million bushels of beans in this country every day!

After considering all the above, if you think you need to set basis for fall delivery, this is the week to do it because merchandisers need to book trains and barges two months in advance, which means the middle of August.

Demurrage is a charge payable to the owner of a chartered ship, barge or rail company if not loaded within the agreed amount of time. Seveteen years ago, those 100 car trains had to be loaded within three days or a demurrage of $200 to $680 per hour was charged. At harvest time, when the need for hopper cars is the greatest, the demurrage will be at the top of the range. Cars sitting on the side-rails do not make the railroad any money and thus, demurrage is charged.

Given the demurrage is so steep, merchandisers want to have a high percentage of the grain needed to load it under contract for delivery before they book that train or barge to arrive two months later. If they do not have quite enough on the books for fall delivery two months before harvest, they often firm the basis for fall delivery in early August to get more grain on the books before they make the financial commitment for a train or barge.

Take some time this week and size up the fall delivery outlook and the many things you can do to offset most of the basis risks. Do not blindly do nothing, start harvest, fill the bins and take the rest to town. You will get hammered 10 to 20 cents a bushel on basis, which can be easily avoided.

Highlights

There were no deliveries assigned Friday night for Monday delivery. Oldest longs are:

Meal: 26 July 2022
Soy oil: 8 July 2022
Beans: 8 June 2022

Late last night: Volga Baikal AGRO NEWS Update on the Current Situation in the Russian Agriculture:

The Russian Grain Production for 2022 is in good shape, overall total output can reach a possible new record historical output in excess of 135 mil mts.

247AG said Saturday night:

More rain for SE Minnesota, moving into Wisconsin. The 4-corners in the Midwest, SD, MN, IA, NE are going to miss. Crops are deteriorating quickly this weekend.

Rainfall totals for the 24 hours ending yesterday morning:

Rain Days Update

The Western Corn Belt has 3 less rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 2 more rain days than yesterday.

The 6 to 10 day forecast updated every day at: https://www.cpc.ncep.noaa.gov/products/predictions/610day/