# 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 Southeastern2000-07 Lehigh Valley2000-07 South Central2000-07 Central2000-07 Western2000-07 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