Cash Market Moves

Market Uncertainty, Limit Moves in Futures Rattle Basis

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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DTN national average spring wheat basis was hit the hardest Thursday after all wheat futures soared higher on the news that Russia invaded Ukraine, shutting down ports that export wheat and other commodities. (DTN chart by Mary Kennedy)

All wheat futures closed sharply higher Thursday, Feb. 24, as markets reacted to the Russian army invading Ukraine after weeks of speculation. By the end of that day, U.S. agriculture companies in Ukraine ceased operations and the ports were closed. That meant any wheat or other commodities were not able to load out and ship to waiting customers.

The wheat markets have been seesawing for weeks on the notion that, if Russia did attack Ukraine, they wouldn't be able to load out wheat commitments and maybe the U.S. could pick up fresh export business if the price was right. The stoppage to shipping in the Black Sea caused by the war will disrupt the futures markets and likely will send U.S. wheat futures and probably corn even higher. Another concern is Ukraine's ability to plant spring crops if the war rages on, and what their ability to harvest their winter wheat will be, especially if Ukraine falls to Russia.

The basis, however, didn't share the same excitement or concerns as the wheat futures. By Thursday evening, after DTN collected corn, soybean and all wheat bids from country elevators, the final result for the day was sharply lower basis levels, especially the wheat numbers.

Spring wheat basis took the biggest hit at 17 cents weaker, soft red winter (SRW) wheat was next at 8 cents weaker, hard red winter (HRW) wheat at 7 cents weaker, and corn and soybeans were 6 cents weaker. You might say wheat basis crumbled because of the sharply higher wheat futures, but that argument wouldn't hold up to explain the demise of corn or soybean basis.

On the day of the invasion, March corn closed up 11 1/4 cents, while March soybeans closed down 13 1/2. On top of that, corn basis has been pretty steady since Jan. 3 when basis was 10 cents under the March contract, and on the day before the invasion, basis was 12 cents under March. Soybean basis was 45 cents under the March contract at the start of the new year, and the day before the invasion, basis was 49 cents under March. The DTN National Corn Index on Jan. 3 was $5.86 and the day before the invasion it was $6.71. The DTN National Soybean Index was $12.93 on Jan. 3 and the day before the invasion it was $16.26. That is a large flat price swing for both of those commodities, and you can see basis levels didn't react to that flat price increase, telling you that demand is still strong.

A likely cause of the big swing in wheat basis can partially be due to the unknown of what would happen the day after the hike in futures. Many elevators were not willing to take on the high wheat flat price, especially with the two winter wheat markets closing limit up. One farmer sent me an email saying his local elevator pulled all the wheat bids on Thursday during the day as futures climbed and then didn't post any bids at the close.

However, it didn't take long for basis to get back to "normal" when the futures markets crashed on Friday, Feb. 25. The front-month March had no limits and, with basis bids having moved to the May futures, the May winter wheat contracts ended down their extended limit of 75 cents and Minneapolis wheat ended down its daily limit of 60 cents. Corn, along with soybeans, came close but did not post a limit-up close on Friday, Feb. 25.

The old saying in the grain business is, "buckle up, it's going to be a bumpy ride" certainly fits the current situation, as nobody knows how the markets will react as this war continues.

Here is a good overview of Ukraine agriculture:…

Here is the CME link to daily price limits which is updated for the next trading day:…

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