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Old-crop prices implode

The transition from old-crop to new-crop was not supposed to be smooth, and it is certainly turning out that way.

The slide started in the August soybean meal contract as speculative liquidation hit the contract, and basis levels plummeted in the cash market. August meal has been limit down two days in a row and could still need to be priced $25.00 lower. Of course, this spills over into the soybean futures contracts. Even corn joined the sell-off, led by the old-crop September contract. This morning, cash corn basis weakened in 50-cent chunks.

This is a frustrating situation, especially for farmers who are not looking at the markets, emails, and news items every moment. However, market participants should understand that prices will not transition from old-crop to new-crop in one day, and the move will not be advertised with plenty of advance warning.  Unfortunately, what happens is the last holders of old-crop (it doesn’t matter how tight old-crop supplies are) will end up receiving something very close to the lower new-crop price.

Now What?

It is possible, after this sharp break, there is a rally back. The sharpness of the move does seem to suggest, at some point, the break will be overdone. Any rallies should provoke the last bits of movement of old-crop. The amount of time left on the calendar that is considered “old-crop” is dwindling. Also, early harvested Southern corn seems to be working its way north.

As early as next Thursday or Friday, the first prereport crop estimates should start hitting the newswires. How big will these be compared to the USDA estimates? Remember, the USDA will be doing some resurveying of bean acres, but corn acres should remain unchanged.

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.

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