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Bean market bull spreading

10/25/2013 @ 12:03pm

It is not what you think! It is not what goes on at the farmers’ table at Mom's Café on Friday mornings. In the simplest explanation, it means a bigger rally in the nearby contract (such as November) than in the deferred contract month (such as July 2014.) In soybean markets, it means that processors want the beans now -- not next summer. When the nearby futures rally more than the deferred futures, it usually is an indicator of good demand. In turn, it normally results in prices going up sooner rather than later.

At the close of trading on October 24, nearby futures ended up at 13.09. May futures closed at 12.64. Even though the spread is less than it was last summer, the 45-cent difference still qualifies in my mind as a major bull spread. Some of this is caused by the South American crop that will be harvested next spring.

At some point, it is wise to pull the trigger on cash sales to take advantage of the runup in price. The difficult thing is that procrastinating pays off in a higher price the longer the sale is delayed. The danger is that overstaying the move until prices drop results in an expensive experience. One of Murphy’s Law says “The market punishes those who make mistakes”. This is why I like the dead-cat bounce in markets like this. The seller at least has the guidelines of 50 cents to $1 price rally as benchmarks to help in knowing when to pull the trigger.

The corn market has not been bull spreading at the same time as soybeans. Therefore, this is an indicator of lessening demand and lower prices. At some point corn futures will stop going down. Not today!

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