"Soybean basis levels became historically weak in many areas this summer," says Darrel Good, University of Illinois Extension marketing specialist. "The prospects for a much smaller U.S. soybean harvest in 2007, and the subsequent decline in stocks, suggest that 2007 crop basis levels will eventually return to more normal levels, but will be influenced by the nature of speculative activity in that market and by the prospective size of the 2008 South American crop."  

As soybean futures soared above $8 per bushel, then above $9 this summer, basis weakened to unprecedented levels in many areas, Good notes. Near maturity of the July 2007 futures contract, cash prices in Illinois were 60 cents to 90 cents under the price of that contract. The basis was 30 cents to 40 cents weaker than the extremely weak basis of the previous year.

Cash bids for harvest delivery of the 2007 crop also are extremely weak. Still, the harvest basis is 30 cents to 40 cents weaker than on the same date last year and 40 cents to 50 cents weaker than during September 2005 when Hurricane Katrina interrupted soybean shipping.

Several reasons have been cited for the extremely weak old-crop basis this summer, says Good. They include historically large stocks of soybeans which depressed cash prices and the increased speculative interest in owning futures contracts. The presence of those large stocks allows end users to be less aggressive in bidding to acquire their needs.

"Speculative interest in owning soybeans was driven largely by the 11.4-million-acre decline in U.S. soybean plantings, modest concerns about U.S. weather conditions, and concerns that South American producers would not make a large increase in soybean plantings for harvest in 2008”, Good continues.

Prospects for the basis to strengthen substantially during the upcoming marketing year suggests there is a potentially large return to storage of the 2007 crop, Good adds. "As the new crop is priced, sales should likely be made for delivery well after harvest, particularly where on-farm storage is available. Unless deferred delivery basis bids are aggressive, those sales may have to be made with futures."

Source: Universityof Illinois/ Bob Sampson, July 31, 2007