Nothing to be ashamed about - being lost - been there myself.

So you are saying the market has always been priced correctly? That could be the right answer. According to the "efficient market" pundits such as Eugene Fama and his academic cohorts the market always takes all information into account at any moment in time and correctly prices it, based on the best available information at that point in time. Of course their studies were about stocks rather than commodities but the same theory should apply.

Personally I have never bought into the efficient market theory. For it to work there has to be the assumption that all participants act in a logical manner based on logical facts. I think that nothing could be further from the truth. I like what Benjamin Graham (I think it was him) said about the valuation of stocks (should apply to grain also) - in the long term the market is like a weighing machine, correctly valuing everything. In the short term it is like a voting machine, making the most popular issues priced the most dearly. I believe that the psychological element in speculation makes the highs go higher than logic would dictate and the lows go lower. Not everyone agrees with this as this would indicate that there is potential profit to be made if one can identify these "mis-pricing" times and take advantage of them. All market gurus that sell marketing advice have to believe this or they would be giving hypocritical advice. If one believes the market is a perfect pricing mechanism then there is no reason to try and 'beat" the market as it is impossible and best to just use some sort of marketing "averaging" system to make sure one gets the average.

In your statement pointing out that the basis has been narrowing keeping the "price" about the same that would seem to me that the futures portion at one point had been overpriced and the cash portion under priced....either or both. My perception is that basis is composed of two things - one is the cost associated of shipping a commodity from the place it is priced (CBOT) and where it is consumed (cash). The other is the amount of speculative element in the futures price or the "unknown". My guess is that there was considerable speculative element in the basis back when Dec07 futures peaked....but that doesn't really take a rocket scientist to figure out.

If futures were correctly priced basis still has a ways to narrow to correct itself (cash prices move up to meet futures). If cash was priced right futures still has a ways to go down to meet basis to freight levels. A year from now we will know which if either was correct (both could have been priced partially wrong). I was just looking for opinions of which element was priced correctly.

Clear as mud? Still lost? ................Important safety tip...... if your lost, don't follow someone else who is also lost to find yourself :-) ....In other words, disregard all the above information!

John