Market Matters Blog

It has been over two years since there has been anything positive to say about soybean basis. The past two end-of-year stories I wrote were depressing to say the least when it came to talking about how the DTN national average basis performed. The 2016-17 DTN average basis earned the title of "bottom feeder," barely beating out the 2017-18 and 2018-19 crop year basis.

The common denominator for the past two crop years has been the lack of China business, as the trade war dragged on and on. At the end of the 2017-18 crop year, soybean basis hit near rock bottom. When the trade war started in mid-June 2018, shuttle basis for soybeans delivered to the Pacific Northwest (PNW) immediately disappeared. Since the majority of soybean exports to China go off the PNW, the trade war shut those exports off, and in turn left farmers in North Dakota, South Dakota and western Minnesota with no export market for their soybeans except to the Gulf.

For the 2018-19 crop year, soybean basis was just as pathetic, as the trade war woes spilled into the new-crop year. The Gulf soybean market became overwhelmed and basis weakened to that market as well. On top of that, logistics turned into a complete nightmare as flooding overwhelmed the entire Mississippi River system, starting at the Gulf in January 2019 and overtaking the entire system through June. The flooding caused major closures of locks and dams and shut down the St. Louis Harbor numerous times, stopping all barge traffic.

There was some hope in early August 2019 when USDA announced U.S. soybeans sold to China, the first time since late June and the first since the Chinese government had offered to exempt five private crushers in the country from the 25% import tariffs on U.S. beans arriving by the end of 2019.

In that same timeframe, when basis was looking up on the PNW, President Donald Trump announced on Twitter that he would impose a new 10% tariff on $300 billion of Chinese goods, set for Sept. 1, with China's failed promises to buy U.S. goods as one of the reasons. That news caused soybean basis on the PNW to drop as much as 30 cents, once again causing areas that ship to the PNW to weaken basis for their farmers.

Local basis in North Dakota suffered from that news and when I checked websites of the shuttle loaders in eastern North Dakota at the time, the nearby basis bids were $1.30 to $1.35 under the November futures, with new-crop basis posted at $1.40 under November futures at the time.

In three months time, those basis levels climbed higher with the same shuttle elevators I had checked before now posting 45 to 52 cents under the November futures, another posting 45 to 65 cents under the November futures and the others posting $1.00 to $1.10 under the November futures for the balance of October into November. In addition, the DTN national average basis this week climbed above the minimum five-year average for the first time in the past three crop years.

It's not just the Dakotas who are seeing an improvement in basis. In the Midwest, where soybeans were also planted late and faced weather challenges during the growing season, new-crop basis is firm. Many elevators are also offering incentives, such as free storage, and some are pushing posted basis levels with a break on posted drying charges.

What changed?

The return of more steady purchases by China has been a boost to soybean basis, especially for farmers who rely on the PNW for their bids. But a late harvest in the Dakotas and western Minnesota has also had a hand in soybean basis' newfound strength.

In the Oct. 20 crop progress report, National Agricultural Statistics Service (NASS) reported soybean condition was rated 4% very poor, 12% poor, 35% fair, 46% good and 3% excellent in North Dakota. Soybeans harvest was at 20%, well behind 51% last year and the five-year average of 81%. During that week, North Dakota farmers harvested just 4% of their beans.

North Dakota farmers were hit by rains in September and hit again by an early season blizzard that covered central and eastern North Dakota with up to three feet of snow and extremely strong winds. Bismarck had four straight days of measurable snow from Oct. 10 to Oct. 13, double its average for the entire month, noted the National Weather Service.

In South Dakota, NASS said 33% of their beans were harvested versus the five-year average of 76%. Central and northeastern South Dakota was also a victim of the early October blizzard. In Minnesota, where some snow and rain fell in early October, 42% of the beans were harvested versus the five-year average of 81%.

USDA noted the average harvest progress for the 18 reporting states was 46% as of Oct. 20, 10 days behind average and the slowest pace for this date since 2009.

Beneath all the snow stood the new-crop soybeans, many of them not quite fully matured. As the snow melted, many farmers have been unable to get in their fields due to mud, and those who tried became stuck.

So, now we have this fresh demand for soybeans and many of them have yet to be harvested. It is still unclear as to how much of the 2019 crop was lost to damage from the blizzard or the freeze that came too soon in other parts of the Midwest for the late-planted crop.

The proof is in the DTN national average soybean basis, which has strengthened 12 cents since Oct. 1 when it was 81 cents under the November futures; as of Oct. 25 it was 69 cents under. This is new territory for soybean basis, which hasn't been this strong for at least three crop years, especially at this time of year, which is normally when the end of harvest is nearing.

Not only did the DTN national average basis climb above the five-year minimum average basis (its "home" for the past three years), it surpassed the five-year average this past week. Will it reach the five-year maximum average? You can follow it every Wednesday when DTN publishes a weekly national average soybean basis chart for its customers.

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn

(BE/CZ)

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