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| Basis is the difference between the board price, quoted by CME, and the local cash price. A weak basis means that difference is more. Basis moves the crop thru the country. Normally basis is weak in the fall. If you are in an area where there is expected to be a big crop with limited storage then the basis will widen and try to push that crop to other areas where there is more storage or not as big of a crop. Most elevators try to buy grain at a wide basis in the fall and put it in storage. Once the crop is harvested basis tends to strengthen from that point on. As this year with soybeans in the fall of 2009 basis was -.50 and the just recently went to +1.00. That is basis appreciation of +1.50. Basis is unique to each location.
Carry is the difference between delivery months. In times of a plentiful supply the carry will be larger. In the example you quoted they mention .30 to ,35 carry. What they are referring to is the difference between the Dec 2010 contract and the July 2011 contract. In this example the market is saying we don't need any corn this fall but we need someone to store it to July. After figuring interest and expenses this farmer views this as a good situation. I would agree. When the market views a shortage in the crop the carry tends to lessen. What the market is saying is we need to get the price of commodity high enough to curb demand. That would take place in the front months and not the back months.
Combine the 2, basis and carry, and in this case storing the grain is very profitable. Other times it is not as good.
That's the basics. It's more detailed then what I explain but hopefully you get the idea. | |
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carry....basis.....easy money???
