Commodities Report

September 26, 2017

 

Close Sept 26

Sept 19

1 week change

Dec Corn

3.52

3.48

+ .04

Nov Soybeans

9.64

9.66

- .02

Dec Wheat

4.54

4.43

+ .11

Oct Hogs

55.25

60.15

- 4.90

Oct Cattle

108.30

108.00

+ .30

Cdn $

81.04

81.53

- .49

US $ Index

92.96

91.84

+ 1.12

Crude Oil

51.91

49.90

+ 2.01

Gold

1297

1307

- 10

US 10 year Notes

126-00

126-00

0

TSX Stocks

15472

15293

+ 179

Grains were little changed over the past week. As of Sunday Sept. 24, 11 percent of US corn was harvested, and 10 percent of the soybeans. Normally it is 17 and 10 this time of year. Nice harvest weather is expected well into October.

This rest of this article could be titled “Grain Basis 101”. Basis adjusts the Chicago futures price for where you are located and for the time of year. There is a space and time component to US grain basis values. Currency obviously has an effect on Ontario basis values.

Chicago is the “premium” market, and there are various locations along the US river system where soybeans can be delivered to get the Chicago price. The further you are from these terminals, the lower your net flat price will be. Obviously, then, freight is an important component of basis.

In most years, US grain basis is at its lowest at harvest time, and rises through the storage season. This makes sense because that is when the supply is the largest. Farmers with on farm storage can capture a higher basis by storing, and selling for deferred shipment, where basis levels reflect this reality.

Ontario farmers don’t always recognize the time or storage portion of basis because of the Canadian dollar. For example, on May 5 this year, the Canadian dollar bottomed at $.7255 US.  Hensall’s board or elevator basis on old crop soybeans hit a high of $3.10 over the July futures.

By Sept 8, our dollar rallied to .8290, a gain of over 10 cents.  Ontario basis by then fell all the way to $1.50 over Nov. futures, for a drop of $1.60, or less than half its previous level. Meanwhile US basis actually rose marginally during that period.

The bottom line is that there is much more variability and risk for Ontario farmers in basis than for US farmers. To properly predict Ontario basis levels, you need to be able to predict what the Canadian dollar will do. I’ve never met anyone who can consistently do that.

That is why I believe Ontario farmers should be flat price sellers, not basis sellers. If prices go to profitable levels, sell a flat price increment. If it goes up, sell another increment etc. This takes risk off the table, and that is what marketing is all about. Doing basis contracts can actually add to your risk.

A recent peculiarity about Ontario basis is that if Chicago goes for a big run, Ontario basis tends to weaken. The argument is that when flat prices are stronger, farmers sell more. End users get covered on their needs, so they can drop their bids.  In theory, if you’re adding a percentage (exchange rate) to a higher Chicago value, the basis should be higher. However, this often isn’t the case.

Soybean and wheat basis is affected by the Canadian dollar much more so than corn. That is because we are almost always on the export floor price in the former commodities. We can be in a surplus or deficit in corn depending on the year or even time of year, and the difference in basis can be large, depending on the scenario. 

- Frank Backx, HDC Grain Marketer