This was a week of transition: Transition from trading government numbers to trading harvest activity and yield. Early on there ideas that yields would be reduced more in the October round of reports. As the week progressed, more and more yield results were reported from key states of Illinois and Iowa with varying results. Keep in mind these yield reports are from early harvest activity and not necessarily indicative of the crop as a whole. The market has agreed with that sentiment, giving up the gains from last week, realizing there is still a lot of harvest left. Soybean yields thus far have been at or above average, leading traders to believe the USDA number is fairly accurate, perhaps even low.
Now that harvest is kicking in and futures have taken a tumble, market focus is shifting to two very intertwined concerns: basis and ownership. Typically basis is falls dramatically once harvest really gets rolling. However this year could be different. Many elevators still have substantial inventories of old crop grain on hand as storage obligations. And with cash prices well below cost of production producer selling is expected to be minimal, making space and ownership ongoing concerns. Enter basis. In this situation basis could be forced to do the heavy lifting to entice selling, thereby transferring ownership to keep the supply pipeline charged. Proceed with caution though, as any type of rally is likely to be short lived. One likely scenario is that elevators will allow only a predetermined amount of grain to go on open storage before forcing grain to be sold, or put on Delayed Pricing, relieving the ownership struggle. Once the ownership struggle is relieved, basis is very likely to fall in its typical fall fashion.
CHS – Rochester Grain Team
Kasson: 507-634-7545 ext 7
Ostrander: 507-657-2234