Factors Affecting Corn and Soybean Basis: The Value of Incorporating Spatial Econometric Approaches

We specify and estimate various spatial models which describe significant factors affecting corn and soybean basis for the period January 1996 to December 2006. Understanding factors affecting crop basis patterns helps agribusiness persons and producers make better marketing strategies. Based on the spatial analyses, we find an increase in lagged basis, futures liquidity, differenced cash prices and seasonality strengthen the grain basis, while an increase in transportation costs weaken the grain basis. Moreover, as the grain basis theoretically varies based on spatial competition between other market points, we find there exist significant spatial effects. We find that accounting for spatial serial correlation between market locations explains a majority of the basis variation.