Why consider a basis contract?

Contributed by Steve Johnson, retired Extension Farm Management Field Specialist

johnsonsteve_2008_1in_72Corn quality concerns are great for a large number of 2009 bushels being stored on-farm. Bins need to be leveled to improve air flow and reduce crusting. The centers of the grain bins should be cored where cracked kernels and foreign material likely concentrate. If there is concern for corn that will not store beyond mid-March on-farm, consider moving that corn early to mid-winter rather than waiting until spring.  By mid-March, many of the piles of corn stored covered and uncovered in the Western Cornbelt will need to be processed or dried.

Five Reasons to Consider a Basis Contract

Here are a few reasons to move on-farm stored corn sooner than later this winter.

1) High moisture levels and lack of air flow in grain bins will not allow that corn to store into the spring months.

2) The discounts for foreign material (FM) were increased by many processors since early November, anticipating the challenge that lies ahead for maintaining corn quality.

3) Corn basis will likely widen into late winter as farmers need to generate cash and corn movement increases.

4) The excessive fall moisture could leave many gravel roads difficult to navigate once the frost leaves.

5) A basis contract fixes the basis and eliminates storage costs, but allows the producer to benefit from higher futures price.

Storing the 2009 corn crop on-farm will likely be a bigger challenge than in recent years. Waiting for a spring price rally carries with it the risk of holding corn that could go out of condition. Facing the potential for an abnormally wide basis late winter brings an additional risk.

A basis contract allows a producer to move corn in early to mid-winter and eliminate the cost of storage and basis risk, yet provide cash flow. A basis contract is a marketing tool that most producers have available to them. Consider how to use the tool this winter to reduce risk and hopefully increase revenue from your 2009 corn crop.

For more on grain marketing, visit the Crop-Marketing section on the Ag Decision Maker website.

Leave a Reply

Your email address will not be published. Required fields are marked *

Ag Decision Maker text image

Archives