Cash Market Moves

Soybean Basis Lacking Christmas Spirit

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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The national average soybean basis chart gives a pretty clear picture of how poor the basis has been performing so far this crop year and needs some holiday cheer. (DTN chart)

The DTN national average soybean basis has continued what I call "bottom feeding" from the prior crop year. As seen in the attached chart, it currently sits at the same level as the minimum five-year average; not quite below it like the 2016-17 basis was for most of that crop year, but close.

On top of plenty of supplies in the U.S., soybeans are facing competition from South America, which is apparent in the lagging export shipments versus last year at this time. In the latest weekly USDA export sales and shipments report on Dec. 14, cumulative soybean shipments were down 13% in 2017-18 from a year ago.

I talked to a few farmers, elevator managers and grain merchandisers around the Midwest and they didn't tell me anything that would make me think that chart will change anytime soon.

"Soybean basis in Michigan continues to be the cheapest it has been for a number of years despite a smaller crop in Michigan than last year," said Robert Geers, merchandising manager at Michigan Agriculture Commodities. "Overall soybean yields were lower than the past two years purely due to a lack of rain in August. August rains really make or break a soybean crop in Michigan, and we just didn't have rain in August like we have had the past two years, and yields suffered. I think the USDA is pretty close on their estimates at 45 bushels per acre, which is down from 50.5 bpa last year."

"Soybean yields were slightly above average and down from last year in our area, but we did have a few more acres of soybeans than last year as well, so I would say the total production is probably similar to last year," said Ryan Wagner, Wagner Farms of Rosyln, South Dakota. "We typically see a post-harvest pop in basis and that happened again this year as it has narrowed up $0.15 to $0.20 since bids were rolled from X (November) to F (January) in late October. Even with the basis improvement, cash bids are still right around -100F, which is about like we saw last year at this time. I would say demand is steady as we are highly dependent on rail moving beans to the PNW, so hopefully we can stay away from a big blizzard delay. With the flat price drop lately and corn not going anywhere, I think guys are content to keep their beans in storage for now and see what happens after the first of the year."

Mark Rohrich of Maverick Ag, Ashley, North Dakota, agrees that overall, soybean basis is disappointing. "The typical basis at the elevator we go to is -0.90 but currently today is at -1.05. But reality is, if the beans are in a bin, a futures rally or basis increase will be what it takes to bring them to market or get them sold into future months. Right now, most grain is sitting pretty tight. Our soybean crop was boosted by late rain to a good crop. Better than we were expecting most of the summer. Not as good as 2016 soybeans but decent, and in the area, soybeans were all over the board. Soil moisture from previous year's crop made a difference in this year's. Wheat, then soybeans did better than beans on beans or soybeans on corn ground."

In southeastern North Dakota, Keith Brandt, general manager of Plains Grain and Agronomy in Enderlin, said soybean basis in his neck of the woods has been from -90 to -115 since the beginning of harvest. "I don't see much of an improvement in basis until maybe into summer, but competition for beans from the river might help. There are expectations of possibly a short crop out of South America that may get the Chinese to cover more, but there is too much of a world supply to get anyone to push it now. Our bean crop did better than most expected with southeast North Dakota in the 40 to 42 bpa compared to around 50 bpa last year. NASS statewide yields of 36 is close."

Another elevator manager in eastern North Dakota told me that they had a "normal" crop yield of 38 to 39 bpa. He told me that if futures want to range in the $9.00 to $10.00 area, it's hard to see any big basis changes in the works. "Feels like the -.95 basis in the country is the -.75/.80 of old. We have heard that recent trades off the PNW are in the low .70s FOB the spout. Their bids the past few weeks to the country went from the upper .70s to now mid .80s. Not sure how they could pay more doing low .70 business....."

Troy Presley, senior grain merchandiser for CoMark Equity Alliance (CEA) told me basis has been very weak the last couple years versus tributary markets in his area. CEA consists of 160 country elevators that touches four states: Kansas, Oklahoma, Nebraska and Texas.

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"The weak basis the last couple years versus tributary markets in my opinion is due to excess supply tributary to the end users," he said. "Crush plants here in the west don't have the competition of export/other end users like they do back east. Rail spreads for YSB in Kansas and Oklahoma are very poor. The railroads have zero interest in implementing any kind of competitive rate on yellow soybeans. Moving beans to the closest river facility is possible, just not in large enough quantities."

He told me crop rotation has encouraged a very large number of wheat acres to be double cropped back to yellow soybeans. "This is giving us some of the largest receipts of YSB we have seen in a recent memory; most likely a record."

Presley said, "We have to remember basis is the local supply and demand facilitator. As frustrating as is it to have cheap basis, the amount of yellow soybeans being harvested in this part of the country is unprecedented and the market needs to find a way to work through them. It would greatly help if the railroad would implement competitive rates on yellow soybeans to help move the excess. Until that happens, I'm afraid we will be subject to the crush plants being opportunistic buyers."

Roger Gattis specializes in grain merchandising at White Commercial Corporation and said, "In many markets, the soybean basis has experienced its traditional post-harvest pop and enough of a pop that many elevators with good harvest basis ownership levels are selling and taking profit. In many instances, the basis margins seen in beans this crop year are the best in many years, if not ever. A big part of that is the extreme pressure that harvest basis experienced this year. This has been less true the further east you go, as North Carolina, Virginia and Georgia have yet to really experience such movement."

"Since the carry in the bean futures market doesn't really pay you much over costs to carry beans very far into the marketing year, many merchandisers are taking profits now, rather than tread water for several months just to be able to sell at equivalent cost adjusted levels."

SUPPLIES COMFORTABLE AMID SLOWING EXPORT DEMAND

DTN Analyst Todd Hultman said the weak basis in soybeans is related to a comfortable level of supplies here in the U.S. "USDA is estimating 445 million bushels of ending stocks for 2017-18, the most in 11 years as both Brazil and the U.S. have had five big consecutive soybean harvests each. As we have seen in the past few years, Brazil continues to be an aggressive exporter to the point where USDA expects them to end their current season with only 145 million bushels of soybeans on Jan. 31. FOB soybean prices are 33 cents a bushel cheaper at the U.S. Gulf than at Brazil's port in Paranagua, which would normally translate to more export business for the U.S.

"The odd thing this season is that U.S. soybean shipments are down 13% in 2017-18 from a year ago, and I suspect China is sitting back, waiting to see how the next round of South American crops fare. As long as no serious weather threat emerges down south, this slower-than-expected export pace is apt to continue, and that will keep the soybean basis weak into early 2018," concluded Hultman.

"Weak demand is what is causing the cheap basis levels in Michigan," said Geers."As a state, we have to export 80% of our soybean production by rail because we have very little processing demand in and around Michigan. Most of the rail beans we export go to the Gulf or East Coast for exports to China. The problem is that China has not been buying the amount of soybeans the USDA has forecasted for this crop year, causing export values to be cheaper than normal, which backs up to cheap basis levels in Michigan.

"Truck demand has been steady in our area, but demand isn't strong enough to reduce the number of beans we need to rail out. Unless Chinese demand picks up, soybean basis values in Michigan will continue to stay weak compared to historical values. The window for the U.S. to export beans is narrowing," added Geers.

With the U.S. typically competitive through March when South America fills the Chinese demand April forward, Geers said it will be very difficult for the U.S. to meet the USDA's projections at the current pace as the shipping window narrows.

Another elevator manager in eastern North Dakota pointed out it's nearly January and South America is still, for the most part, the best bid with bean inventory to burn and a harvest only a month or so away. "Now day's there isn't much of a window for the U.S. to be the only place to go for beans anymore, unlike just a few years ago when China was waiting on our harvest to start in September/October."

Wagner pretty much summed up the current picture for soybeans saying, "Basis giveth, futures taketh away, big carries ... same old story."

Bah Humbug.

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

Follow Mary Kennedy on Twitter @MaryCKenn

(BAS/CZ)

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