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Weakening bean basis is another sign

12/13/2013 @ 4:12pm

For several days I have been warning that weakening of the basis is a sign that demand for soybeans is getting weaker. That in turn forecasts a drop in the price of cash beans.  This week a second factor has come into play similar to the warning of dropping demand. The basis continued to weaken with futures making new highs. Cash soybean bids at Midwest Co-op made a high for the move of $12.89 on Monday, December 9. At the same time basis dropped another five cents. Rising futures prices and dropping basis are reliable signals that trouble is ahead. 

This morning I had the opportunity to visit with a buyer for a large soybean processor. He commented that his company had bought a lot of soybeans in the last two weeks. This observation reinforced my theory that dropping basis levels reflect diminishing demand. The other side of the equation is that the purchasers may have bought all of the beans that they wanted at the better basis levels, therefore their basis bid is less than it was two weeks ago.

This principle seems logical. Under these conditions it is hard to know whether basis is dropping because of relatively high prices, or whether reduced demand is reflected in dropping prices. It would seem that dropping basis levels by 15 cents would make buying the beans more attractive. However buyers have all they want at the better basis level.

Regardless of which comes first, the fact remains that the price of soybeans here in Cass County, Nebraska, is 21 cents below where it closed Monday afternoon. Part of this is the fact that the basis is five cents lower this week, fifteen cents below where it closed on November 29. This price action further encourages me to be aggressive in pricing the last 20 percent of the 2013 beans that I own in commercial storage.   It also will cause me to look carefully at pricing some 2014 beans when and if there is another bounce in the near future.

My drop “dead date” beyond which I do not want to own unpriced cash soybeans is December 31. That is only 11 days away. Sometimes markets have a lot of volatility over the holidays. I hope that will be the case this year. If so it may be the opportunity I am looking for to finish 2013 sales.

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