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Ron and Sue Mortensen: Bean squeeze

Agriculture.com Staff 08/27/2009 @ 2:45pm

In the same manner as the spread between August and November beans, the spread between September and November beans is on fire this week as first notice day for the September contract approaches.

The tightness in the old crop supply/demand situation is still very pronounced. Strong exports, especially to China, are the biggest bullish driver of price. Plus the late development of the crop means new crop supplies will probably not flow to the market as quickly as in past years.

That awkward moment is coming-the moment when the cash soybean market falls apart. This should occur five seconds after a merchandiser smells new crop soybeans at his facility.

Presently, since there are no new crop soybeans available to Midwest processors, bids are rocketing higher as crushers scramble to find beans to make into high priced meal. There are certainly farmers with soybeans out there in the country, but they are generally unaware of the situation. Or they've never considered basis levels as they evaluate marketing decisions.

But a quick math calculation reveals the enormous premium structure of the market. November futures price of $9.91 plus a basis level of $1.50 (there are better bids out there and there are worse bids) for spot delivery equals $11.41. After September 15th, cash bean prices could easily be $9.91 minus a basis level of $0.60 or $9.31. On the other hand, if there is still no frost in the forecast, and futures prices move lower, cash beans could be under $9.00. Ouch. $2.50 per bushel gone in two or three weeks.

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.

In the same manner as the spread between August and November beans, the spread between September and November beans is on fire this week as first notice day for the September contract approaches.

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