We are experiencing some interesting times again this summer.  Due to the tight domestic stocks in both corn and soybeans we have seen some abnormal basis levels and interesting spreads between different futures months.  Generally, there are two components of cash grain prices, the underlying CBOT futures contract and the basis for each specific location.  The basis can be either a positive or a negative number and, without going into too many details, is made up of freight to a given marketplace, elevator margin, and functions much like a flow control valve.  Every day it is weighing what it takes to get bushels to move to market or slow the grain flow down.

The spread between futures months can also be a positive or negative number and this is called either an inverse (when a deferred month is a lower value than a nearby month) or a carry (when a deferred month is a higher value than the nearby month).  Similar to changes in basis levels, the change in futures spread is the market’s way of telling you when it wants the grain to move. If the market will pay you more today than tomorrow it’s saying, “haul it to me now, because I am paying you less tomorrow.”

These spreads have had an enormous amount of volatility this year and has caused many end users of both corn and soybeans to roll their bids to a deferred futures month sooner than they have in the past, which has caused a little confusion in the marketplace. In early June we have seen some end users roll their bids to the September futures contract, which is inverted (less than) to the July contract. Historically, this is a couple weeks earlier than normal. For bids to be equal in an inverse, a bid versus September must have a higher basis than a bid versus July. For example, in corn, $1.00 over the September futures may be a lower cash price than $0.25 over the July futures, depending on where futures are trading relative to each other.

To a producer, cash is king and cash price is what ultimately should matter to you.  $7 corn pays the bills, not a $.25 basis level or a $1.00 basis level.  When you are ready to price your grain, remember to compare apples to apples and give your local Wheat Growers Grain Marketing Specialist a call.