During the summer of 2023, US wheat export basis levels found themselves in close proximity to historic lows, a result of sluggish demand coupled with seasonal weaknesses. Across various US wheat classes and export points, these basis levels consistently remained below average, presenting a unique pricing opportunity for American wheat. A historical pattern emerged, illustrating that basis levels typically hit their nadir during the wheat harvest season and then exhibit an uptrend in October, November, and December. This upward trajectory coincides with a tightening of export capacity in response to increased corn and soybean shipments.

Following this established seasonal pattern, US export basis levels have indeed climbed for all wheat classes. Despite this increase, the average Hard Red Spring (HRS) basis for the Gulf and Pacific Northwest remains 15% below the five-year average. Simultaneously, Hard Red Winter (HRW) and Soft Red Winter (SRW) bases sit at 31% and 27% below the five-year average, respectively. Examining the driving forces behind this trend and its implications becomes imperative as the second half of the marketing year 2023/24 unfolds.

The most prominent factor contributing to the below-average basis values is the overall reduction in export volume for grains and oilseeds, with a particular emphasis on soybeans. Data from the U.S. Department of Agriculture (USDA) reveals that inspections for all grains (wheat, corn, and soybeans) for the week ending December 28, 2023, witnessed a 19% decline compared to the same period in the previous year and a staggering 39% drop below the three-year average.

US wheat exports are grappling with analogous challenges on the competitive front. USDA export data highlights a 14% lag behind the previous year and a significant 26% dip below the five-year average. The diminished overall grain volume has resulted in surplus capacity within US logistics systems, particularly in the realm of railroads. Consequently, Secondary Railcar Auction Market Bids, which offer real-time insights into the supply and demand for rail freight, have plummeted to an average of $65.12 per car for October, November, and December. This represents a stark decline from the $836.11 per car observed the previous year and the five-year average of $262.96 per car. The cumulative impact of surplus capacity in grain handling and logistics has alleviated pressure on wheat basis levels, allowing them to drift lower.

The combined impact of below-average basis levels and the downward trajectory in wheat futures prices, fuelled by heightened competition from the Black Sea, Canada, and other origins, has served to enhance US wheat competitiveness throughout 2023/24. Consequently, the movement of basis levels will retain its pivotal role in maximizing value and capitalizing on market opportunities as they unfold.