Cash Market Moves

Winter Wheat Basis Crashes as Futures Skyrocket

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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Pictured is the DTN national average weekly hard red winter wheat basis chart, showing the sharp drop posted on Friday, March 4, versus the prior week basis on Feb. 25. (DTN chart)

Beginning traders learn the simple math of how to define a basis by taking the cash price (also known as the flat price) minus the futures price. They also learn the three main factors affecting basis are transportation costs, storage and interest costs, and supply and demand. There are other factors, such as weather, as it relates to crop conditions during the planting and growing season and harvest. However, the factor that is now controlling the grains markets (especially the basis) is one that likely most, if not all, traders didn't see coming -- and that's the attack by Russia on Ukraine.

While the DTN national average corn basis weakened 27 cents versus the prior week, the soft red winter (SRW) wheat and hard red winter (HRW) wheat basis were crushed. One week ago, on Feb. 25, the DTN national average SRW basis was 41 cents under the May futures, and a week later, on March 4, the basis sunk to $1.86 under the May futures. HRW basis on Feb. 25 was 19 cents under the May, and on March 4 had fallen to $1.03 under the May.

Even though the DTN National Soft Red Winter Wheat Index was sharply higher on March 4 versus one week ago, up $2.05, and the DTN National Hard Red Winter Wheat Index was up $2.40 versus a week ago, it didn't necessarily mean a producer could capture that cash price.

Why? Because that flat price posted was at the futures close of that day and those futures for most of the week ended March 4 closed up their daily limit of 75 cents. That means because those futures were "locked" at their daily limit, they could not be traded; in layman's speak, cash purchases could not be hedged.

Many elevators simply pulled their cash bids altogether or posted just the sharply lower basis bid, which left the producer unable to market his grain on the days that took place, which was most of the week. The Kansas City milling wheat spot market, which posts the values of spot premiums for ordinary proteins through 14% proteins every day, reported no bids in the closing daily report March 4. I can't recall ever seeing that before.

It's not just producers who are affected, but end users of wheat who may need it now, i.e., flour mills. They likely are nervous that the prices will not only continue to surge, but that they may not even be able to get offers.

Those prices could surge again, as the CME announced "expanded limits" for the Chicago (SRW) and Kansas City (HRW) wheat contracts: "Effective on trade date Monday, March 7, 2022, (pending CFTC approval), CBOT will amend the daily price limit to $0.85 per bushel and the expanded price limit to $1.30 per bushel of the contracts until the next regularly scheduled daily price limit reset in May 2022. The price limit for the contracts will start at the daily $0.85 per bushel price limit upon implementation."


Ukraine has long been considered a breadbasket because of its rich soil, and it accounts for 12% of the world's total wheat exports, according to the United States Department of Agriculture. Last year Ukraine harvested nearly 33 million metric tons (mmt) of wheat, USDA reported, "a stark increase from the previous year."

The Kyiv Independent reported, according to the Food and Agriculture Organization of the United Nations, Ukraine, the world's fourth largest grain exporter, supplied 3 mmt of wheat to Egypt alone, providing 15% of the total consumption for the country of over 100 million people.

"Dozens of countries, including Egypt, Yemen, Lebanon, Tunisia, Indonesia, Malaysia and even China rely on Ukrainian harvests to feed their people.

"The Middle East and Africa absorbed nearly 40% of Ukraine's exports of corn and wheat in 2021," noted the Independent.

The article noted prior to the full-scale war breaking out, "In the event of a large-scale invasion, prices could double, hurting countries already struggling with food shortages, like Yemen. In this desert country, where every fifth kilogram of imported wheat comes from Ukraine, more than 16 million people, or half the population, suffer from acute hunger, according to the World Food Program."

Farmers in Ukraine should be getting their fields ready to plant their new crop corn by the beginning of April. A former Ukraine farmer on Twitter said right now is the time of year that the first pass of spring nitrogen should be going on winter wheat, winter rapeseed and winter barley. Their new-crop winter wheat won't be harvested until July, like the U.S. winter wheat harvest time. None of these scenarios may happen given the invasion by Russia in Ukraine continues to rage on. In addition, it is unclear just how bad their infrastructure has been damaged.

We have seen many pictures of bridges and roads in many Ukraine cities destroyed and no one is certain if fields may also have been damaged. The Washington Post reported the mayor of Mariupol said rail links and bridges have been battered in the key Ukrainian port. On Feb. 24, when the invasion began, the Ukraine government suspended commercial shipping from its ports. That means exports are shut off indefinitely and old-crop wheat that is owed to other countries, especially Egypt, will not ship.

Hence the extreme changes in the cash prices of wheat that are "out of control" a wheat mill buyer recently told me.

Bottom line is if you thought flour and bread got expensive during the pandemic, get ready for even worse sticker shock in the coming weeks and months.

Here is a link showing all Ukraine Sea ports:…

Here is a March 3 press release from the Maritime Administration of Ukraine, "Maritime Aspect of Russian War Against Ukraine: Timeline";…

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