The Basis for Corn in Different Regions of Pennsylvania

James W. Dunn

The basis is the difference between the price in a location at a particular time and the price of the nearby futures contract. This value is helpful for calculating what the current price of a futures contract implies about the local price at some time in the future. With this information a farmer who will be buying or selling corn in the future can get a current market estimate of that price and use it for planning. The opportunity to hedge, either using the futures market or with a local forward contract, may allow the price for the farmer to be known with near certainty.

The idea behind the basis is that corn prices move together because there is one national corn market, and the Pennsylvania market is a tied to it.  The graph below shows how the prices move together.

 

 The following table shows the monthly basis and yearly average basis for the regions in Pennsylvania for which the Pennsylvania Department of Agriculture collects corn prices. These prices are derived from the weekly Grain and Hay Report, as prepared by the Market News Service of the Pennsylvania Department of Agriculture and the closing price of the nearby corn futures contract on the Chicago Board of Trade.  Thus the basis numbers shown are the average difference (in cents per bushel) between corn futures prices in Chicago and the corn price in the respective region. For example, if the March futures contracts are trading at $4.14 per bushel in Chicago, the average corn price during March can be expected to be $4.14+$0.27=$4.41 per bushel in Central Pennsylvania and $4.14+$0.33=$4.47 per bushel in Southeastern Pennsylvania. Although the basis is not perfectly predictable, its variability is considerably less than the corresponding cash price.

The Corn Basis in Pennsylvania Regions 

(Cents/bu.)

Month

Southeastern

2000-07

Lehigh Valley

2000-07

South Central

2000-07

Central

2000-07

Western

2000-07

JAN

31

28

22

25

5

FEB

32

30

23

26

10

MAR

33

29

26

27

12

APR

31

26

25

28

15

MAY

34

31

26

29

15

JUN

40

39

34

38

19

JUL

40

39

33

40

24

AUG

39

36

32

38

20

SEP

32

31

28

34

17

OCT

17

15

15

17

2

NOV

22

19

19

21

6

DEC

29

25

20

22

5

YEAR

32

29

26

29

13

Several factors affect the difference in basis between regions and between months including the distance to Chicago, infrastructure, the time of the year, and storage capacity.

The major determinant of the difference in basis between regions is transportation costs. In most months, the basis is approximately the cost of transporting a bushel of corn from the Midwest to that region. The further a region is from the Midwest, the higher the transportation cost and, consequently, the higher the basis. Therefore, as the table shows, the basis in Southeastern PA is larger than the basis in Western PA.  The basis was especially high in the 2002-03 crop year.  It is clear that the basis is strongly tied to the size of the PA corn crop.  The figure below shows this.  The 2007 corn crop is about 125 million bushels and the basis is about 30 cents in December 2007 which is consistent with the figure. 

Infrastructure also affects transportation costs, since infrastructure determines how accessible an area is. Because Southeastern Pennsylvania has better rail service and larger storage facilities, the transport costs to the Southeast compared to those to Central Pennsylvania are lower than the distances would suggest.

Local supply and demand conditions affect the basis, especially in the late summer and early fall. As expectations about the harvest become realized and the available supply is known, local markets must absorb this supply. Local prices may be lower at this time than transportation costs would suggest, as storage facilities are full. After January, the local glut is usually worked off and the basis rises by about 10 cents to more accurately reflect transportation costs.

Storage facilities allow producers more leeway in waiting for an acceptable price. If prices are low, producers can hold their crop until the price rises. Therefore, greater storage capabilities relative to local production should be reflected in higher local corn prices, and a higher harvest period basis.

The basis data in visual form for the Southeast is shown below.  The lower basis in the last few months of the year and higher prices otherwise are present in almost every year and region.  In all regions the summer basis is high and especially variable.

 

Regional Detail

The high and low for each region are given in the following tables.  It is apparent the basis varies widely within months, so the monthly averages are only a starting point.  Furthermore, even on  a given day, the price of corn can vary by 10-20 cents in a region, especially when markets are volatile.  Buyers or sellers of corn are encouraged to develop their own estimates of their basis in the market that they frequent.  The figures given here may be systematically higher or lower than what you find from the dealers you patronize.  Your basis is from these dealers. The dealers surveyed by the Pennsylvania Department of Agriculture are disproportionately in the more agricultural counties in these regions.  Therefore, the Southeastern Pennsylvania Basis is primarily Lancaster and Lebanon Counties, although dealers in other southeastern counties may be polled.  

 

Southeastern PA Basis 2000-07

Month

Avg

High

Low

JAN

31

63

10

FEB

32

62

14

MAR

33

64

15

APR

31

64

10

MAY

34

60

9

JUN

40

66

18

JUL

40

80

13

AUG

39

66

13

SEP

32

56

9

OCT

17

58

-11

NOV

22

64

-16

DEC

29

65

-9

YEAR

32

80

-16

Southeastern Pennsylvania includes the counties of Lancaster, Lebanon and counties to the east.

Central PA Basis 2000-07

Month

Avg

High

Low

JAN

25

74

-10

FEB

26

67

10

MAR

27

67

4

APR

28

68

0

MAY

29

61

-5

JUN

38

70

9

JUL

40

76

3

AUG

38

68

6

SEP

34

66

2

OCT

17

68

-37

NOV

21

76

-27

DEC

22

78

-16

YEAR

29

78

-37

Central Pennsylvania includes the area bounded by Clearfield, Cambria, Dauphin, and Columbia Counties.  I have the information to update these tables and can supply them to you if requested. The averages are about 2 cents per bushel higher because of the high basis in 2002-03.

Southcentral PA Basis 2000-07

Month

Avg

High

Low

JAN

25

74

-10

FEB

26

67

10

MAR

27

67

4

APR

28

68

0

MAY

29

61

-5

JUN

38

70

9

JUL

40

76

3

AUG

38

68

6

SEP

34

66

2

OCT

17

68

-37

NOV

21

76

-27

DEC

22

78

-16

YEAR

29

78

-37

 

South Central Pennsylvania is bounded by Bedford County on the west and Cumberland and York County on the east. I have the information to update these tables and can supply them to you if requested. The averages are about 2 cents per bushel higher because of the high basis in 2002-03.

Lehigh Valley Basis 2000-07

Month

Avg

High

Low

JAN

28

70

4

FEB

30

65

9

MAR

29

67

10

APR

26

65

-7

MAY

31

63

3

JUN

39

70

10

JUL

39

80

-4

AUG

36

70

5

SEP

31

63

5

OCT

15

64

-54

NOV

19

75

-20

DEC

25

75

-14

YEAR

29

80

-54

The Lehigh Valley region includes Luzerne,  Schuylkill, Carbon, Monroe, Pike, Lehigh, and Northhampton Counties. I have the information to update these tables and can supply them to you if requested. The averages are about 2 cents per bushel higher because of the high basis in 2002-03.

Western PA Basis 2000-07

Month

Avg

High

Low

JAN

5

60

-34

FEB

10

60

-24

MAR

12

60

-22

APR

15

61

-18

MAY

15

54

-34

JUN

19

50

-32

JUL

24

60

-13

AUG

20

58

-6

SEP

17

50

-23

OCT

2

40

-61

NOV

6

55

-55

DEC

5

60

-46

YEAR

13

61

-61

The easternmost counties in the Western Region are Warren, Forest, Jefferson, Indiana, Westmoreland, and Somerset. I have the information to update these tables and can supply them to you if requested. The averages are about 2 cents per bushel higher because of the high basis in 2002-03.

I would appreciate and comments, corrections, or additional insights about the basis in Pennsylvania.  Please send me an e-mail at jwd6@psu.edu , write or call me.  I have the underlying data and more detail about each region for those interested.

Jim Dunn
Penn State University
203 Armsby Building
University Park, PA 16802
814-863-8625