The Widening Corn Basis in South Dakota: Factors Affecting and the Impact of the Loan Deficiency Payment

Abstract

This thesis examines factors affecting the local corn basis in South Dakota before and after the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 in an attempt to identify why the local basis has widened in the years after the 1996 farm bill. The FAIR Act introduced the loan deficiency payment program as an alternative to putting grain under loan. This thesis will determine whether the loan deficiency payment has an affect [sic] on local corn basis through the construction of a model and testing of that model using ordinary least squares regression. Other possible factors affecting basis were identified through a review of literature. Theoretically, factors that have an affect [sic] on local corn basis are futures price, local cash price, local corn usage, transportation costs, local storage availability, yearly local corn production, and seasonality. The results of the regression analysis revealed that the loan deficiency payment accounts for approximately 32% of the widening of the South Dakota local corn basis. Other factors significantly affecting local corn basis are futures price, local supply and demand, and seasonality