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Soybeans, what to do?

Agriculture.com Staff 09/01/2006 @ 1:19pm

Many farmers have been asking what they should do with the 2005 and 2006 soybeans.

Because of large carryout and the assumption of a normal crop, we have been more aggressive this past year to sell the 2005 and 2006 crop. The trend is down, and prices have a tendency to get even weaker into harvest. If that is the case again this year, bean prices could move another 25 to 50 cents lower. As of this writing, September futures are currently trading near $5.40. Our point- move the 2005 crop, and call it a season.

If you want ownership, do it on paper. For 2006, if you have storage, you could contemplate forward contracting into the carry for later delivery. This captures carry and leaves the door open for possible LDP. Consider re-ownership with futures or CALL options.

If you have 2005 crop soybeans under loan, we suggest being prepared to make a move if soybean futures gain more than 5 cents on any given day. Take your 60-day lock, and at the end of 60 days, if futures are higher, sell the beans and pay off your loan. If prices are lower, you will get one more opportunity to lock in a lower level. However, you need to be prepared to pay the loan off on the day that you accomplish this task.

As for the 2006 crop, our bias is to recognize that prices could still move lower. If you have not sold by now and don't want to forward contract, then store. We believe demand in the year ahead will be large, and there has been enough uncertainty with South America's crop in recent years to suggest that end users will be more aggressive buying U.S. beans late this fall. A weak U.S. dollar and strong world oil consumption, along with continued enthusiasm over biodiesel in the months and years ahead, will have traders on the offensive after harvest. Unfortunately, rally potential is probably limited to 50 cents.

If you need cash flow and don't want to sell, take a loan on new crop beans. If you prefer to secure an LDP, look to accomplish this at or near harvest. Consider a January or March PUT to replace LDP.

If you have any questions or comments or would like more detailed strategies for your situation, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.

Many farmers have been asking what they should do with the 2005 and 2006 soybeans.

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