Grain Prices, Basis, and Transportation
Snapshot of Latest Data
This page shows a variety of interactive price data, which shed light on the "when" and "where" of grain transportation demand. This section shows grain prices over time. The next section combines grain prices with futures market data to show grain basis, and the section after displays origin-destination price spreads. The final section explains how prices, basis, and spreads relate to transportation.
The charts below show the most recent 180 days of data for corn, soybean, and wheat prices for several locations across the country.
Grain basis provides an important perspective on transportation demand. Basis is calculated as the difference between the local cash price and the futures price. The figures below show basis across space and over time.
Grain Price Spreads
Grain price spreads—the difference between the destination price and origin price—provide another important perspective on grain transportation demand. The visuals below show price spreads over geographic space (maps) and time (charts).
How Do These Concepts Connect to Transportation?
Prices are a fundamental component of exchange in all markets. Data on grain prices help facilitate the functioning of agricultural markets, indicating to buyers and sellers the value of the product and where it is desired most. In turn, grain prices are closely related to grain transportation. The supply and demand for grain simultaneously determine both the price of grain, as well as the demand for grain transportation. Therefore, while it can be a complicated relationship, grain price data over time and across space shed light on the temporal and spatial dimensions of grain transportation demand. The following describes how basis and price spreads relate to grain transportation.
Basis affects when and where many grain producers and shippers buy and sell grain. It reflects both local and global supply and demand forces. Many factors affect basis—such as local supplies, storage and transportation availability, and global demand—and they interact in complex ways. How changes in basis result in changes in transportation is likewise complex and not always direct.
Temporary changes in the demand for grain are positively related to basis and the demand for transportation. For instance, an increase in current demand will drive cash prices up relative to future prices, and increase basis. At the same time, grain will enter the transportation system to fulfill that demand. In other words, when grain elevators want to increase the flow of grain, they raise cash prices, resulting in a more positive (or less negative) basis. This causes the basis to narrow, or strengthen. Interior elevators raise basis to receive more grain from farmers, and terminal elevators raise basis to receive grain from the interior elevators. When current demand declines instead, cash prices will fall relative to futures prices; basis will widen, or weaken; and the demand for transportation will similarly fall.
However, grain supplies also affect basis, but will have the opposite effect on the demand for transportation. For instance, during harvest, farmers and elevators can either store or sell their grain. Storing provides a chance at higher prices later in the year when total supplies have depleted later in the year, but storage is costly, and it is especially costly when everyone is trying to store at the same time. For those that do sell, the increase in the supply of grain will push down cash prices relative to futures prices, and basis will weaken, but the demand for transportation will increase, as lower prices mean more sales and more shipments to fulfill those orders.
Whether a farmer or an elevator, market participants look to "buy low" and "sell high"—a simple notion but difficult to put into practice. If there were no costs to exchange, a person would simply buy grain where it is cheapest and sell where it fetches the best price. However, this does not reflect reality. In the real world, there are costs to exchange, like the cost of transportation. The area with the best price may also be costly to reach.
With this in mind, price spread data can indicate where transportation costs are high or where grain is likely to move. Like basis, price spreads and transportation are closely linked but have a complicated relationship. All else equal, the price spread approximates costs to flow grain from the origin to the destination, a large portion of which is transportation. Changes in spreads stem from changes in prices that have not yet materialized in other locations (e.g., a high price at a port has not yet resulted in a high price in the interior to flow grain) or from changes in transportation costs.
The former case is likely to be associated with higher traffic volumes on that route, as market participants try to capture the spread. The latter case is likely to be associated with lower traffic volumes on that route, as transportation costs (e.g., a disruption or unreasonably high rate) make the trip impossible or unprofitable.