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Market craziness rules

I watch the cash basis and spreads between the contract months for hints of future price direction. For the past several months, both the spreads and basis have been indicating higher prices ahead. Nearby futures contracts have been at a premium to deferred months. Basis between futures prices and cash bids have been at near historic highs since last fall. I warned that this situation would turn around when the buyers and processors of grains shifted their focus from old-crop 2012 to new-crop 2013.

It appears that this week was the time for that switch to happen. It was late when I got in from the field last evening. There was a phone call waiting from one of the farmers who belongs to a marketing group I work with. He asked me if I had seen the markets on Tuesday or Wednesday. I replied that my mind was occupied with planting soybeans. He suggested that I also look at action the previous two days in the grain markets. He also said that it was one of the craziest markets in a long time.

The corn market held pretty steady this week. Basis of .40 over July futures indicates that end users are willing to pay up for cash corn more than speculative traders are willing to pay for futures. Cash corn prices are about 40 cents per bushel less than last November 1. The cash bid has held together relatively well, considering that there appears to be little concern anymore about planting progress or soil moisture conditions.

The soybean market has not fared as well. There is sometimes a drop in the cash price when terminals change their bidding month. With the recent basis so good and the inverted spread, the change this year was bound to be huge. However, comparing the closing bid on Wednesday to the comparable bid on Monday showed that while the futures price went up 15 cents, the cash bid dropped 27 cents. That is a relative drop of 42 cents. There probably have been shifts of that magnitude before, but on short notice I do not remember when.

In addition, there is no longer a bonus for immediate delivery. All of these factors added together probably signal a negative outlook for the soybean market. We should all have anticipated that the shine would diminish for that commodity sooner or later. Knowing when it would happen is the tough part of the puzzle. That is especially true considering that cash prices today are lower than they were at harvest.

The bright side of the corn picture is that the cash price locally finally hit my target of $7 per bushel. That caused me to sell the next increment of my 2012 corn this morning. I now have only one increment left to sell if the price continues to work higher. Fundamentals for corn are somewhat different than for soybeans. Brazil is not nearly the competitor for corn that it is for soybeans. There is little likelihood of importing corn to make up for the cash shortfall in this country, so the local cash corn bid is good through July.

The other good side of this picture is that I finished soybean planting on Thursday morning. When I think back to my early years of farming, I can remember many times when the majority of my soybeans were planted in June. It is much more pleasant wearing a jacket than sweating in hot weather on an open-station tractor. It is also more pleasant anticipating a crop of 60-bushel-per-acre soybeans than it is 40-bushel beans!

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