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OCTOBER 21, 2013
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Columns the costs of storing your grain, or recover the interest lost by not making the sale sooner.
BASIS Basis is the other important component in establishing a price for your grain. Understanding how and why the basis is maneuvered by grain companies and brokers can tell you a lot about what is happening in the market, and help you to make better marketing decisions. The basis is where the buyers cover their costs of doing business (costs like freight and handling), and where they make their profits. This is also how they try to control the flow of grain into their facilities. Freight and handling costs are a fairly static cost that don’t really fluctuate much during the year. But the profitability component of the basis can and will vary greatly, depending on the company’s need for your grain.
This last year in central Alberta, we saw canola basis range from -$20/t to +$45/t. This was an unusual year because of the tight supplies and increased demand for canola. Now, with the record new crop that is anticipated, basis levels are ranging from -$12/t to -$25/t. So what is a good basis? That depends on the year. Last year a good basis in Central Alberta was +$15/t. This year a good basis will probably be in the range of -$10/t because of the large crop and the competitive world oilseed marketplace. What should you watch for when it comes to basis and what it is telling you about the marketplace?
BASIS TIMING Grain companies are making sales yea round, and they need to make sure they have grain coming into their system year around to meet those sales needs.
They will offer attractive basis levels months in advance to secure tonnage for a sale. You will see this quite often early in the new year with canola, for example, as companies try to get farmers to commit some tonnage for early harvest deliver (September or
Consider your cash needs months in advance October) to meet early sales commitments. Companies will offer very attractive basis levels for those months starting early in the new year (January, February and March). Those attractive basis levels usually only last a week or two before they disappear, because the company has signed up sufficient tonnage for that delivery period to meet its needs.
As grain companies’ sales progress through the year you will notice basis levels for the forward months getting more attractive than nearby months. As a seller, you need to pay attention to this. If you need to sell grain to meet your own specific cash flow timelines, you should consider your cash needs months in advance. Watch for basis levels to narrow for that time period, then lock them in when they are attractive, rather than waiting until 30 days before you need to deliver to decide to price your grain. It is quite likely that the basis 30 days prior to delivery will be wider than earlier in the year, because the grain companies usually have their nearby sales needs met months in advance — their nearby basis will be wide as a way to discourage deliveries they don’t need. Depending on the year, paying attention to basis levels could mean
a difference of $10 to $40 per tonne that you could put in your pocket.
QUICK REVIEW Here’s a quick review of the discussion. • If futures spreads are narrow, that tells you buyers are looking to buy sooner than later. • If futures spreads are wide, that tells you buyers are trying to get you to hold your grain and deliver it later in the year, when they need it. • If basis levels are narrow, grain companies are looking for grain to meet sales commitments. • If basis levels are wide, grain companies don’t really need or want your grain at that time. Here’s hoping your harvest was a success. † Brian Wittal has 30 years of grain industry experience, and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd. Contact him at www.procommarketingltd.com.
There’s no stronger tie than the family who works together on the same land. For them, farming’s a tradition. And although each new generation has their own ideas, there are some things they will be reluctant to change, the things that have consistently performed for them, the things that aren’t broken. InVigor® – proud to be part of your family farm for over 17 years.
C-66-08/13-BCS13097-E
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Runs in the family.