Soybean South

 - MARKETING -

Storing Beans Discouraged

By Melvin Brees

T he slow harvest pace has supported a price rally in soybean futures prices that began earlier this month (October). Soybean futures prices continue to discourage storing soybeans. While somewhat improved from last month, the November ’09 to March ’10 soybean futures market carry is only about seven cents per bushel. The current stronger-than-recent average basis suggests limited basis gain potential with storage. The combination of weak carry and limited basis potential offers little in the way of potential storage returns. If cash soybeans are stored, it continues to be primarily speculation on higher futures prices!

The recent soybean futures price rally and basis strength have offered cash soybean prices in the upper one-half to above the USDA forecast price range with cash bids near $9.30 to more than $10 at locations across Missouri. These are profitable prices for nearly all producers, and there are a variety of ways to capture them.

A cash delivery sales contract would lock in both basis and futures price resulting in a profitable sale when harvest resumes and delivery can be made. A possibly more profitable, but risky strategy is to wait for signs that the current rally is peaking. Then make contract sales. This particular strategy would require more precise timing to implement successfully. A somewhat less risky alternative would be using a basis contract to lock in a relatively strong basis while waiting to see if the current futures price trend continues.

Understand speculative risks
For those who continue to expect much higher soybean prices and want to store to capture them, understand the risks. There is limited carry in the soybean futures prices, which is a strong demand signal that the market wants soybeans now. However, although limited, there is somewhat more carry in the market than last month. This could be interpreted as a signal that demand is beginning to weaken. This could be an early signal that the market will begin to anticipate a large crop in South America that will provide export competition with less demand for U.S. soybeans.

While higher prices could occur, there is risk in storing soybeans into the spring of ’10. There is an alternative strategy to storing soybeans that might work better this year than in most years if futures prices do increase into spring. With a lack of market carry and relatively strong basis that limit normal storage gains, making sales and then re-owning those sales with futures or call options may offer a less risky alternative to storing beans and allow continued speculation on higher prices. Remember, the risk of lower prices and speculative losses with this strategy or the alternative of storing beans is significant!

Read Melvin Brees’ “Decisive Marketing” in its entirety at www.agebb.missouri.edu.