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Corn basis revisited

The extremely strong corn basis is currently receiving a lot of attention. Todd Gleason says ag economists are trying to figure out why it's been so strong.
Compiled by staff 
Published: Feb 1, 2012
The extremely strong corn basis is currently receiving a lot of attention.

University of Illinois ag economists Darrel Good and Scott Irwin first made note of the strong basis pattern last October.  They suggested at the time that the strong cash prices relative to futures prices implied that futures prices may have been under-valued relative to demand strength. We concluded with the statement that 'Historically, divergences like this one have not tended to last long. It will be interesting to see exactly how this one is resolved. Stay tuned'

Now, three months later, Good and Irwin find the corn basis is even stronger than in October and at record levels in some markets. Figure 1 illustrates the magnitude of the average basis at country elevators in South Central Illinois each Thursday from late September through late January for the past 6 years. The cash price used in the calculation is the overnight bid as reported by the USDA’s Agricultural Marketing Service and the futures price is the settlement price of the March futures contract. Since October 20, 2011 the basis has strengthened by $0.15 and stood at a record $.05 on January 26, 2012. In the previous 37 years for which we have data, the average cash price in this area had not ever been above the nearby futures price on this date.



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