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Roy Smith: Still going!

Agriculture.com Staff 06/04/2010 @ 2:34pm

For several weeks I have been watching the spreads between nearby soybean futures and deferred contracts. At the same time, I have also noted a positive basis between cash bids at the processor in Council Bluffs, IA and the nearby futures contract. Both of these factors point to good demand for cash beans and bullish sentiment across the soybean industry.

Even with the positive spreads, July soybean futures dropped 80 cents between April 23 and May 25. That is obviously not a bullish move. What would really convince me that a bullish scenario really exists would be for both futures and basis to go up. That situation finally played out in the soybean market on Thursday, June 3. Soybean futures began the trading day higher and continued to go further up as the session progressed.

The day ended with July futures up 22 cents. Futures finally showed some of the good demand that had been hinted at in the good cash basis levels. Maybe just as important, as futures went up basis also improved. The improvement was only two and a half cents, but added to the improvement in futures made for an impressive day in the soybean market.

The true test of the price strength will be indicated by follow through next week. Harvest is still a long way off. If the processors truly need beans to keep plants running, the rally should continue. Long term seasonal charts show a rally lasting at least until June 23. That potentially gives farmers two and a half weeks to take advantage of the situation.

Psychologically it would be easier to sell into the current rally if prices could challenge the highs of late April. If nearby July futures lose the carry compared to November futures or if basis weakens it will be an indication that demand is tapering off. If it those things happen more than a day or two at a time, it is time to pull the trigger on sales.

At that point, sales of old crop supplies and new crop forward contracts will probably be a good idea. It will pay to watch the soybean markets closely for the next three weeks . Soybean futures over $9 are at a profitable level for most farmers. Getting the highest price possible is a worthy goal. However, at some point the line between patience and greed becomes very blurred. Murphy says "When the plate of cookies goes around the table, don't forget to take a couple." One of those opportunities to take some cookies may come before the end of this month!

For several weeks I have been watching the spreads between nearby soybean futures and deferred contracts. At the same time, I have also noted a positive basis between cash bids at the processor in Council Bluffs, IA and the nearby futures contract. Both of these factors point to good demand for cash beans and bullish sentiment across the soybean industry.

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Soybeans Rally on Demand, Weather