Melvin Brees
Farm Management Specialist
University of Missouri Extension

 

 

 

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Please send your comments and send suggestions to Melvin Brees, Farm Management Specialist, University of Missouri Extension, #1 Courthouse Square,  Fayette, MO 65248, call 660-248-2272, or send messages by e-mail to: breesm@missouri.edu.
June 23, 2000

Hot Cash Soybean Demand?

Your reaction to that title is probably, "are you kidding me?" Soybean futures prices are well down into the lower one-third of their historical price range. On Thursday, Central Missouri cash soybean bids (reported by MO Department of Agriculture/USDA Market Service) ranged $4.76 to $4.87. These prices are below CCC loan rates. How can prices this low suggest strong demand?

In spite of these low prices, the cash market is sending some strong demand signals. July futures closed at $5.01 3/4 (Thursday). This results in a Central Missouri cash market basis of minus $0.15 ($4.87 cash - $5.01 3/4 futures) to minus $0.26 ($4.76 - $5.01 3/4). This is about nine cents stronger (better) than average and it is $0.20 to $0.28 better than this time last year. One Central Missouri soybean processor was bidding $5.00, a basis less than two cents under July futures!

Basis signals cash supply and demand factors and a strong basis suggests the market needs cash beans. Transportation, interest, handling and holding represent costs that must be covered by basis and why Central Missouri cash prices are usually lower than nearby futures prices. However, when available supplies are not meeting demand, grain purchasers bid up the cash price (strengthen or narrow the basis) to attract product sales or delivery. Since the current basis is stronger (narrower) than average, it indicates strong cash demand for soybeans even if futures prices are low.

The strong cash demand is also showing up in the futures market. On Thursday, July soybean futures closed at $5.01 3/4 while November closed at $4.83 1/2. This is more than eighteen cents premium for nearby futures over the deferred contract and creates and inverted market (deferred futures usually have the premium over nearby). This inversion suggests soybean users are bidding up nearby futures to cover current needs--another indication of strong cash demand.

New crop basis may be getting better too. Comparing selected Central MO new crop cash bids with November futures suggests a new crop basis of minus $0.30 to minus $0.35. This compares with average and is considerably stronger (narrower or better) than last year's minus $0.40 to $0.50.

A strong basis and low futures prices suggest market strategies that sell the cash market and buy (speculate) the futures market. Locking in a strong basis can be accomplished by selling cash soybeans, forward contracting or using a basis contract. If you expect (or hope for) low prices to improve, then speculation (or waiting for higher prices) can best be accomplished by buying futures or call options. In short, a strong basis indicates strong cash demand and is a market signal to make cash sales! --Melvin

**Non-GMO soybean premium update.** Today's Tokyo Grain Exchange Non-GMO December soybean contract was 22950 Yen per 1000 Kilograms or $5.99 per bushel. The December U.S. Soybean (GMO allowed) Contract was 21830 Yen/kg or $5.70 /bu. This is a delivered in Japan $0.29 premium for non-GMO soybeans.


University of Missouri ExtensionDecisive Marketing - June 30, 2000
http://outreach.missouri.edu/agconnection/DCT/DM000623.html -- Revised: April 20, 2004
breesm@missouri.edu