The Value Of Quality

Quality is the part of basis you can control

Put simply, basis is the difference between the local cash price you can get at any given time from your elevator and the futures price on the Chicago Board of Trade. Unfortunately, there isn’t anything simple about calculating basis. Many factors play a part in the price that farmers receive when they sell their beans.

Availability and costs of transportation help to determine basis. Last fall, the lack of railcars negatively impacted soybean farmers in the northern growing areas. Transportation considerations can also help basis. Farmers who farm near waterways have a stronger basis than those who rely on roads to move their product.

Supply and demand in a farmer’s area also contribute to basis. A local biodiesel plant or poultry operation increases the local demand for soybeans, thus improving basis for farmers who sell their beans nearby.

Another element that contributes to basis is the estimated processed value, or EPV. This is the value of the soybean meal, oil and hulls minus the processing costs. EPV essentially accounts for quality of soybeans.