Given the new deregulated wheat market environment, producers and industry alike entered into the crop year being challenged to know the difference between an attractive and an unattractive basis level. Basis, simply put, is the difference between the cash price being offered and the futures price being used to drive the pricing. The market was made further complicated by the exceptional rally in the wheat market, given production losses in competing export nations such as Australia, Argentina and the Black Sea countries.
Since last fall, I have been calculating a Prairies-wide average basis. This is calculated with bids that are easily accessible, while many of the companies choose to hold price data very close to their chests. The result may not be indicative of basis levels at any one producer's delivery point, but what is more important is the over-all trend of the calculated average.
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The average prairie basis level has narrowed from $1.34 per bushel late last September to this week's average basis of 25 cents per bushel. This week's calculated basis was 1 cent higher than last week's basis of 24 cents, reflecting the first time in six weeks that basis has weakened. These levels range from a 0 basis, or option price, to a 49 cent basis or deduction. Ironically, DTN's National Spring Wheat Index for March 13 resulted in a National Average basis of 24 cents, similar to my Western Canadian average.
The important note to make here is the bottoming action as seen in the last 10 days, with basis falling from 27 cents, to 24 cents, then 1 cent higher to 25 cents. In this same 10-day time period, MGEX May wheat futures have bounced off of a low of $7.80/bu. and traded as high as $8.04/bu. today, while there are signals that suggest that wheat may have potential to extend this move higher.
While, basis levels seem to be supported in the mid-20s-cents range, watch for companies to gradually widen basis levels should futures continue to move higher. Growers may want to consider basis contracts to lock in today's favorable basis or deduction, while watching the future for potential upward movement.
Cliff Jamieson can be reached at email@example.com
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