Soybean%20Basis%20Developments:%20Understanding%20How%20Transportation%20Costs,%20Service%20and%20Capacity%20Affect%20Producer%20Returns

1
Soybean Basis DevelopmentsUnderstanding How
Transportation Costs, Service and Capacity Affect
Producer Returns

• A Presentation to the
• Soy Transportation Coalition
• Chicago Marriott OHare
• December 10, 2007
• Presented by
• Mark D. Newman, President
• Market Solutions LLC
• 4306 Leland Street, Suite 101
• Chevy Chase, MD 20815 USA
• Tel [phone]
• Fax [phone]
• info_at_marketsrus.com
• www.marketsolutionsllc.com

2
Overview

• Market Solutions LLC has begun an analysis to
  help the Soy Transportation Coalition (STC)
  understand the extent to which soybean basis is
  widening, the role of transportation costs,
  service and capacity in this situation, and what
  might be done about it.
• Soybean basis is the difference between the cash
  price offered at a delivery location and the
  nearby soybean contract price on the Chicago
  Board of Trade (CBOT).
• Basis is generally a result of costs of
  transportation, storage, interest and local
  supply and demand conditions.
• Soybean basis has been widening in recent years,
  meaning that many producers are getting as
  smaller share of the CBOT price.
• Soybean prices are currently relatively high, so
  many producers may not notice to the money they
  are losing to increased basis.. but if and when
  overall price levels fall, there is no reason to
  think that basis will narrow, especially if the
  widening is because transportation costs have
  increased.

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The Trend Toward Wider Soybean Basis is Clear

• Across a growing share of the country, soybean
  basis has gradually become wider and more
  negative over the last ten years.
• The following maps, produced using price data
  from over 2600 locations by Cash Grain Bids Inc.
  provide a national overview of basis change for
  the months of October for 2006 and 2007 compared
  to averages for the last five and ten years.
  Similar analysis is also presented for February
  and June.
• More detailed basis maps are presented for
  Illinois, Indiana, Iowa, Nebraska, North Dakota,
  Ohio and South Dakota. The consistent message
  from all of them is that many farmers are getting
  less of the futures price for their soybeans.
• Data sets including price and basis data have
  also been developed for more than 50 specific
  locations across the country, including elevators
  that receive rail cars at single car rail rates,
  elevators with unit and shuttle train capability,
  port and river elevators with access to barge
  shipping, and soybean processing facilities.
• Analysis is just beginning to help determine how
  transportation costs, service and capacity
  contribute to basis differences and changes at
  specific locations.

4
October 2007 Average Soybean Basis
Source Cash Grain Bids Inc for Market Solutions
LLC
5
October 2006 Average Soybean Basis
Source Cash Grain Bids Inc for Market Solutions
LLC
6
October - 5 Year Average Soybean Basis
Source Cash Grain Bids Inc for Market Solutions
LLC
7
October 10 Year Average Soybean Basis
Source Cash Grain Bids Inc for Market Solutions
LLC
8
October Soybean Basis 2007 vs. 10 year Average
October 10 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
9
February Soybean Basis 2007 vs. 10 year Average
February - 10 Year Ave
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
10
June Soybean Basis 2007 vs. 10 year Average
June - 10 Year Ave
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
11
February Soybean Basis 2007 vs. 2006
February - 2006
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
12
June Soybean Basis 2007 vs. 2006
June 2006
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
13
October Soybean Basis 2007 vs. 2006
October 2006
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
14
October Soybean Basis 2007 vs. 5 year Average
October 5 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
15
June Soybean Basis 2007 vs. 5 year Average
June 5 Year Ave
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
16
February Soybean Basis 2007 vs. 5 year Average
February 5 Year Ave
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
17
State Level Basis Data and Maps

• Detailed basis data for more than 50 locations
  has been developed to permit additional analysis
  of the role of transportation in the difference
  in basis facing producers at locations. The
  points selected are shown on the following map.
• Charts that follow show individual states, and
  basis in 2007 compared to the five year average.
  This is followed by a list of locations in the
  state for which basis data has been obtained.
• To help in thinking about how to proceed with
  state level analysis it would be useful to get
  feedback about these specific locations and
  factors that should be considered in determining
  why basis varies among them.

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Basis Data Locations for Additional Analysis
Legend Country elevator
Export/River market Processor

19
October 2007 Basis at Select Locations
20
October Soybean Basis 2007 vs. 5 year
AverageIowa
October 5 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
21
October Soybean Basis 2007 vs. 10 year
AverageIowa
October 10 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
22
February Soybean Basis 2007 vs. 5 year
AverageIowa
February - 5 Year Ave
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
23
June Soybean Basis 2007 vs. 5 year AverageIowa
June 5 Year Ave
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
24
Specific Sites Selected for Basis Data Analysis
in Iowa

• Ashton IA United Farmers Coop
• Cedar Rapids IA Cargill
• Davenport IA Cenex Harvest States
• Des Moines IA ADM
• Dunlap IA United Western Coop
• Fairfield IA Reiff Grain
• Livermore IA Gold Eagle Coop
• Nashua IA Five Star Farmers Coop
• November average basis ranged from 39 cents under
  at Davenport to -101 at Nashua, a 62 cent range

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October Soybean Basis 2007 vs. 5 year
AverageIllinois
October 5 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
26
February Soybean Basis 2007 vs. 5 year
AverageIllinois
February - 5 Year Ave
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
27
June Soybean Basis 2007 vs. 5 year
AverageIllinois
June 5 Year Ave
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
28
Specific Sites Selected for Basis Data Analysis
in Illinois

• Bloomington IL Cargill
• Hennepin IL ADM
• Nashville IL Ag Pride FS
• Paxton IL Ludlow Coop
• Rochelle IL Maplehurst Farms
• Rushville IL Two Rivers FS
• Stonington IL Stonington Coop Grain
• October basis ranged from -30 at Bloomington to
  -74 cents at Rushville, a 44 cent range.

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October Soybean Basis 2007 vs. 5 year
AverageIndiana
October 5 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
30
February Soybean Basis 2007 vs. 5 year
AverageIndiana
February - 5 Year Ave
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
31
June Soybean Basis 2007 vs. 5 year
AverageIndiana
June 5 Year Ave
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
32
Specific Sites Selected for Basis Data Analysis
in Indiana

• Decatur IN Bunge
• Evansville IN ADM
• Greensburg IN Lowes Pellets
• Kokomo IN Kokomo Grain
• Linden IN Cargill
• Portage IN Cargill
• In October, basis ranged from -30 in Evansville
  to -60 in Linden a 30 cent range. In November,
  the range was 47 cents.

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October Soybean Basis 2007 vs. 5 year
AverageNebraska
October 2007
October 5 Year Ave
Source Cash Grain Bids Inc for Market Solutions
LLC
34
February Soybean Basis 2007 vs. 5 year
AverageNebraska
February 2007
February - 5 Year Ave
Source Cash Grain Bids Inc for Market Solutions
LLC
35
June Soybean Basis 2007 vs. 5 year
AverageNebraska
June 2007
June 5 Year Average
Source Cash Grain Bids Inc for Market Solutions
LLC
36
Specific Sites Selected for Basis Data Analysis
in Nebraska

• Bellwood NE Frontier Coop
• Gothenburg NE Farmland Service Coop
• Lincoln NE ADM
• In October, basis ranged from -84 in Lincoln to
  -122 in Bellwood, a 38 cent range.

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October Soybean Basis 2007 vs. 5 year
AverageNorth Dakota
October 5 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
38
February Soybean Basis 2007 vs. 5 year
AverageNorth Dakota
February - 5 Year Ave
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
39
June Soybean Basis 2007 vs. 5 year AverageNorth
Dakota
June 5 Year Ave
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
40
Specific Sites Selected for Basis Data Analysis
in North Dakota

• Finley ND Finley Farmers Grain
• In October, basis averaged -131 to this shuttle
  facility. Others in North Dakota report even
  wider basis.

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October Soybean Basis 2007 vs. 5 year
AverageOhio
October 5 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
42
February Soybean Basis 2007 vs. 5 year
AverageOhio
February - 5 Year Ave
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
43
June Soybean Basis 2007 vs. 5 year AverageOhio
June 5 Year Ave
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
44
Specific Sites Selected for Basis Data Analysis
in Ohio

• Circleville OH Cargill
• Deerfield OH Deerfield Farm Service
• DeGraff OH Champaign Landmark
• Marion OH Bunge
• Maumee OH Andersons Grain
• October basis ranged from -57 at Marion to -95
  cents at Deerfield, a 37 cent spread. In
  November, the range was 48 cents.

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October Soybean Basis 2007 vs. 5 year
AverageSouth Dakota
October 5 Year Ave
October 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
46
February Soybean Basis 2007 vs. 5 year
AverageSouth Dakota
February - 5 Year Ave
February 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
47
June Soybean Basis 2007 vs. 5 year AverageSouth
Dakota
June 5 Year Ave
June 2007
Source Cash Grain Bids Inc for Market Solutions
LLC
48
Specific Sites Selected for Basis Data Analysis
in South Dakota

• Aberdeen SD South Dakota Wheat Growers
• Gregory SD Gregory Farmers
• Volga SD South Dakota Soybean Processors
• In October, basis ranged from -110 in Volga to
  -150 in Gregory, a 40 cent range and among the
  lowest prices received.

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Basis Data for Other States

• In Missouri, among locations analyzed there was a
  56 cent spread in basis during October, from -22
  in St. Louis to -88 in Hardin. The spread in
  November was 81 cents.
• In Kansas, October average basis ranged from -42
  cents in Emporia to -103 in Larned, a 61 cent
  spread.
• In Minnesota, October average basis ranged from
  -78 cents in Mankato to -119 in Brandon, a 41
  cent spread, which increased to 49 cents in
  November.
• In Wisconsin, average October basis ranged from
  -100 in Cambria to -112 in Durand.
• Data for a number of other locations have been
  assembled for analysis.

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Next Steps

• The graphical analysis shows clearly that soybean
  basis is widening, so that farmers are getting
  less of the Chicago futures price than they used
  to.
• Results show this to be a widespread problem, and
  one that is consistent throughout the year.
• The next step is to try to explain more of the
  reasons for the overall widening of basis levels,
  and differences among locations.
• The planned next steps will involve some
  preliminary quantitative analysis of the basis
  data that have been developed, together with
  additional information about transportation and
  other factors that help to explain variability in
  basis at and among specific locations.
• The analysis can be enriched through interviews
  with management of some of the specific locations
  being studied.

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Thank You!!! Mark D. Newman, President Market
Solutions LLC
4306 Leland Street, Suite 101 Chevy Chase, MD
20815 USA   Phone [phone] Fax (301)
654-4742 E-mail marknewman_at_marketsrus.com On the
web www.marketsolutionsllc.com