Soybean Basis Developments: Understanding How Transportation Costs, Service and Capacity Affect Producer Returns A Presentation to the Soy Transportation.

Soybean Basis Developments: Understanding How Transportation Costs, Service and Capacity Affect Producer Returns A Presentation to the Soy Transportation Coalition Chicago Marriott O’Hare December 10, 2007 Presented by Mark D. Newman, President Market Solutions LLC 4306 Leland Street, Suite 101 Chevy Chase, MD USA Tel: (301) Fax: (301)

Overview Market Solutions LLC has begun an analysis to help the Soy Transportation Coalition (STC) understand the extent to which soybean basis is widening, the role of transportation costs, service and capacity in this situation, and what might be done about it. Soybean basis is the difference between the cash price offered at a delivery location and the nearby soybean contract price on the Chicago Board of Trade (CBOT). Basis is generally a result of costs of transportation, storage, interest and local supply and demand conditions. Soybean basis has been widening in recent years, meaning that many producers are getting as smaller share of the CBOT price. Soybean prices are currently relatively high, so many producers may not notice to the money they are losing to increased basis.. but if and when overall price levels fall, there is no reason to think that basis will narrow, especially if the widening is because transportation costs have increased.

The Trend Toward Wider Soybean Basis is Clear
Across a growing share of the country, soybean basis has gradually become wider and more negative over the last ten years. The following maps, produced using price data from over 2600 locations by Cash Grain Bids Inc. provide a national overview of basis change for the months of October for 2006 and 2007 compared to averages for the last five and ten years. Similar analysis is also presented for February and June. More detailed basis maps are presented for Illinois, Indiana, Iowa, Nebraska, North Dakota, Ohio and South Dakota. The consistent message from all of them is that many farmers are getting less of the futures price for their soybeans. Data sets including price and basis data have also been developed for more than 50 specific locations across the country, including elevators that receive rail cars at single car rail rates, elevators with unit and shuttle train capability, port and river elevators with access to barge shipping, and soybean processing facilities. Analysis is just beginning to help determine how transportation costs, service and capacity contribute to basis differences and changes at specific locations.

October 2007 Average Soybean Basis
Source: Cash Grain Bids Inc for Market Solutions LLC

October 2006 Average Soybean Basis

October - 5 Year Average Soybean Basis

October 10 Year Average Soybean Basis

October Soybean Basis: 2007 vs. 10 year Average
October 10 Year Ave October 2007 Source: Cash Grain Bids Inc for Market Solutions LLC

February Soybean Basis: 2007 vs. 10 year Average
February - 10 Year Ave February 2007 Source: Cash Grain Bids Inc for Market Solutions LLC

June Soybean Basis: 2007 vs. 10 year Average
June - 10 Year Ave June 2007 Source: Cash Grain Bids Inc for Market Solutions LLC

February Soybean Basis: 2007 vs. 2006

June Soybean Basis: 2007 vs. 2006 June 2006 June 2007

October Soybean Basis: 2007 vs. 2006

October Soybean Basis: 2007 vs. 5 year Average

June Soybean Basis: 2007 vs. 5 year Average
June 5 Year Ave June 2007 Source: Cash Grain Bids Inc for Market Solutions LLC

February Soybean Basis: 2007 vs. 5 year Average
February 5 Year Ave February 2007 Source: Cash Grain Bids Inc for Market Solutions LLC

State Level Basis Data and Maps
Detailed basis data for more than 50 locations has been developed to permit additional analysis of the role of transportation in the difference in basis facing producers at locations. The points selected are shown on the following map. Charts that follow show individual states, and basis in 2007 compared to the five year average. This is followed by a list of locations in the state for which basis data has been obtained. To help in thinking about how to proceed with state level analysis it would be useful to get feedback about these specific locations and factors that should be considered in determining why basis varies among them.

Basis Data Locations for Additional Analysis
Legend – Country elevator Export/River market Processor

October 2007 Basis at Select Locations

October Soybean Basis: 2007 vs. 5 year Average Iowa

October Soybean Basis: 2007 vs. 10 year Average Iowa

February Soybean Basis: 2007 vs. 5 year Average Iowa

June Soybean Basis: 2007 vs. 5 year Average Iowa

Specific Sites Selected for Basis Data Analysis in Iowa
Ashton IA United Farmers Coop Cedar Rapids IA Cargill Davenport IA Cenex Harvest States Des Moines IA ADM Dunlap IA United Western Coop Fairfield IA Reiff Grain Livermore IA Gold Eagle Coop Nashua IA Five Star Farmers Coop November average basis ranged from 39 cents under at Davenport to -101 at Nashua, a 62 cent range

October Soybean Basis: 2007 vs. 5 year Average Illinois

February Soybean Basis: 2007 vs. 5 year Average Illinois

June Soybean Basis: 2007 vs. 5 year Average Illinois

Specific Sites Selected for Basis Data Analysis in Illinois
Bloomington IL Cargill Hennepin IL ADM Nashville IL Ag Pride FS Paxton IL Ludlow Coop Rochelle IL Maplehurst Farms Rushville IL Two Rivers FS Stonington IL Stonington Coop Grain October basis ranged from -30 at Bloomington to -74 cents at Rushville, a 44 cent range.

October Soybean Basis: 2007 vs. 5 year Average Indiana

February Soybean Basis: 2007 vs. 5 year Average Indiana

June Soybean Basis: 2007 vs. 5 year Average Indiana

Specific Sites Selected for Basis Data Analysis in Indiana
Decatur IN Bunge Evansville IN ADM Greensburg IN Lowes Pellets Kokomo IN Kokomo Grain Linden IN Cargill Portage IN Cargill In October, basis ranged from -30 in Evansville to -60 in Linden a 30 cent range. In November, the range was 47 cents.

October Soybean Basis: 2007 vs. 5 year Average Nebraska
October 5 Year Ave Source: Cash Grain Bids Inc for Market Solutions LLC

February Soybean Basis: 2007 vs. 5 year Average Nebraska
February - 5 Year Ave Source: Cash Grain Bids Inc for Market Solutions LLC

June Soybean Basis: 2007 vs. 5 year Average Nebraska
June 5 Year Average Source: Cash Grain Bids Inc for Market Solutions LLC

Specific Sites Selected for Basis Data Analysis in Nebraska
Bellwood NE Frontier Coop Gothenburg NE Farmland Service Coop Lincoln NE ADM In October, basis ranged from -84 in Lincoln to -122 in Bellwood, a 38 cent range.

October Soybean Basis: 2007 vs. 5 year Average North Dakota

February Soybean Basis: 2007 vs. 5 year Average North Dakota

June Soybean Basis: 2007 vs. 5 year Average North Dakota

Specific Sites Selected for Basis Data Analysis in North Dakota
Finley ND Finley Farmers Grain In October, basis averaged -131 to this shuttle facility. Others in North Dakota report even wider basis.

October Soybean Basis: 2007 vs. 5 year Average Ohio

February Soybean Basis: 2007 vs. 5 year Average Ohio

June Soybean Basis: 2007 vs. 5 year Average Ohio

Specific Sites Selected for Basis Data Analysis in Ohio
Circleville OH Cargill Deerfield OH Deerfield Farm Service DeGraff OH Champaign Landmark Marion OH Bunge Maumee OH Andersons Grain October basis ranged from -57 at Marion to -95 cents at Deerfield, a 37 cent spread. In November, the range was 48 cents.

October Soybean Basis: 2007 vs. 5 year Average South Dakota

February Soybean Basis: 2007 vs. 5 year Average South Dakota

June Soybean Basis: 2007 vs. 5 year Average South Dakota

Specific Sites Selected for Basis Data Analysis in South Dakota
Aberdeen SD South Dakota Wheat Growers Gregory SD Gregory Farmers Volga SD South Dakota Soybean Processors In October, basis ranged from -110 in Volga to -150 in Gregory, a 40 cent range and among the lowest prices received.

Basis Data for Other States
In Missouri, among locations analyzed there was a 56 cent spread in basis during October, from -22 in St. Louis to -88 in Hardin. The spread in November was 81 cents. In Kansas, October average basis ranged from -42 cents in Emporia to -103 in Larned, a 61 cent spread. In Minnesota, October average basis ranged from -78 cents in Mankato to -119 in Brandon, a 41 cent spread, which increased to 49 cents in November. In Wisconsin, average October basis ranged from -100 in Cambria to -112 in Durand. Data for a number of other locations have been assembled for analysis.

Next Steps The graphical analysis shows clearly that soybean basis is widening, so that farmers are getting less of the Chicago futures price than they used to. Results show this to be a widespread problem, and one that is consistent throughout the year. The next step is to try to explain more of the reasons for the overall widening of basis levels, and differences among locations. The planned next steps will involve some preliminary quantitative analysis of the basis data that have been developed, together with additional information about transportation and other factors that help to explain variability in basis at and among specific locations. The analysis can be enriched through interviews with management of some of the specific locations being studied.

Mark D. Newman, President Market Solutions LLC
Thank You!!! Mark D. Newman, President Market Solutions LLC 4306 Leland Street, Suite 101 Chevy Chase, MD USA Phone: (301) Fax: (301) On the web:

Soybean Basis Developments: Understanding How Transportation Costs, Service and Capacity Affect Producer Returns A Presentation to the Soy Transportation.

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Soybean Basis Developments: Understanding How Transportation Costs, Service and Capacity Affect Producer Returns A Presentation to the Soy Transportation.

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Presentation on theme: "Soybean Basis Developments: Understanding How Transportation Costs, Service and Capacity Affect Producer Returns A Presentation to the Soy Transportation."— Presentation transcript:

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