Written collaboratively by Matthew Elliott, SDSU Extension Agribusiness Specialist and Lisa Elliott, former Assistant Professor & SDSU Extension Commodity Marketing Specialist.
Basis is the difference between the cash price paid for grain at a specific location and the nearby futures price. Changes to basis occur due to changes in local supply and demand and due to changes in the costs to transport grain to a distant end user. For example, the narrowing of basis has been observed when there is greater local demand, less supply of the grain, or decreasing transportation costs. Alternatively, widening basis has been observed when there is less demand, more supply, and higher transportation costs. The recent outbreak of COVID-19 has caused basis changes in South Dakota in the near-term.
For example, South Dakota was experiencing a relatively strong basis for corn in late 2019 and early 2020 in most districts. Most market observers attributed the stronger corn basis post-harvest to strong demand and less local supply available for purchase. However, due to the COVID-19 outbreak, many ethanol facilities have reduced capacity or shut down completely—lessening the demand for corn. Moreover, there are continuing concerns that the capacity to transport grain could be reduced because of disruptions at port facilities. As a result, corn basis has significantly weakened in South Dakota.
SDSU Extension Basis Tools
South Dakota farmers can monitor South Dakota basis for corn, soybeans, spring wheat, and hard red winter wheat in their region relative to export bids and historical basis ranges using the SDSU Extension basis tools. The basis values shown in the tool are continuous spot basis bids. They represent the difference between the spot local price and the current cash futures contract. Farmers can lock in basis to reduce their basis risk by agreeing to a basis contract with a grain merchant. An interactive historical basis map of spot South Dakota basis values for corn, soybeans, winter wheat and spring wheat can be found using the South Dakota Historical Basis Map Tool. This tool also provides a table of the rail rates in dollars per bushel to transport the grains to various locations in the U.S and Mexico. Basis rates can be examined for any date starting in 2010. A chart showing the average spot basis by South Dakota crop reporting district with historical ranges can be found using the South Dakota Historical Basis Chart Tool. This tool also shows the difference in basis values at export terminals and the South Dakota Crop Reporting District. Basis values in the tools will be updated periodically to allow producers to continue monitor basis risk and current basis values.