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The party’s over

Agriculture.com Staff 07/17/2009 @ 6:57am

The soybean bull spread trade took a hit Thursday, with the August bean contract tumbling 44 cents while the November bean contract only lost 14 cents. The meal contracts traded in a similar fashion. Cash basis is slipping and perhaps patience is wearing thin. Being the last out the exit door on this trade will be highly unprofitable.

But of course, the main story was China! An announcement that the government was going to auction 500,000 metric tons of beans and perhaps 2 million metric tons of corn spooked the market. Never mind that China had booked purchases of old and new crop beans this week that totaled more than 500,000 mt. Never mind that China was virtually the only purchaser of beans in this week's export sales report (China bought 111,000 mt old crop and 525,000 my new crop).

The Chinese government may be altering their behavior. Or they could simply be trying to rotate stocks (sell some old and refill storage with new). Or this could be a minor market distraction (initial prices for these beans are significantly above market prices). Certainly, if they need to purchase additional beans, the business will be done at lower prices.

Other popular trades recently involve the three main ag commodities. For example, many have been long corn and short wheat. With wheat harvest advancing to over 50 percent complete, traders looked to take profits and have bought wheat and sold corn in the first half of July. Long beans/short corn was probably another popular spread trade simply because the demand story for beans has sounded better than for corn. But the losses in soybeans have caused liquidation.

If the market's crystal ball was able to predict an improving economic climate towards the end of the year, perhaps these reactions wouldn't be so severe. But it will take time to get a handle on demand for new crop, especially with such volatile outside market forces. After the violent price moves of the past few weeks, it may take awhile before speculators stick a toe in the water again.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

The soybean bull spread trade took a hit Thursday, with the August bean contract tumbling 44 cents while the November bean contract only lost 14 cents. The meal contracts traded in a similar fashion. Cash basis is slipping and perhaps patience is wearing thin. Being the last out the exit door on this trade will be highly unprofitable.

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