Posted by LonM on October 08, 2018 at 15:24:02 from (64.118.3.165):
In Reply to: Understanding basis posted by rrlund on October 08, 2018 at 05:58:03:
Thank you for posting. Basis is a good indicator of demand- it will fluctuate seasonally to reflect the demand in the marketplace. It is generally wide during harvest, and usually narrows going into spring as processors and end users need to replenish their feedstocks.
Basis is also a reflection of distance to markets and transportation costs.
Soybean basis has been interesting this summer, as most of the beans in my part of the world go to the pacific northwest ports. Soybean basis has widened 30-60 cents or more due to the lack of bids in the PNW. So, basis indicates to us that the demand for our beans is quite low out there.
In the cattle markets in my area of western MN/eastern SD, basis tends to be a positive number, meaning feeder cattle and fat cattle tend to sell higher in the cash markets than what they are trading at in Chicago on the futures market. Again, it is a reflection of demand.
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