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.
September 22, 2000

Soybean Market Signals = Difficult Decisions

Grain bins, temporary storage and elevators are filling up with corn--some will be piled on the ground. Rail cars are hard to come by and low river levels limit barges. So grain handling and movement is getting tough. Some storage space is being set aside for soybeans and, while the corn and bean situation appears similar, the soybean market signals are somewhat different. What should you do with the beans?

Soybean basis is very weak and the futures market does offer some "carry." Thursday's (9-21-00) Central Missouri cash bids represented a basis of about forty to fifty cents under the November futures. This is similar to harvest time basis of the past two years (1998 & 1999) which saw basis recover fourteen to nineteen cents (or more) by mid to late winter. Thursday's futures closes were $4.91 3/4 for November and March at $5.11 3/4--the futures market is offering $0.20 to hold (carry) soybeans until early 2001.

Assuming ten-percent interest rate and a minimum commercial storage charge of twelve cents followed by a three cents per month storage charge, will short term storage pay? Using a Thursday Central MO bid of about $4.50 storing into February would result about $0.37 in interest and storage costs. Using an expected basis recovery of $0.14 to $0.19 plus $0.20 market carry, the current market suggests a storage return of $0.34 to $0.39. In this case, storage might about break even ($0.34-$0.39 return minus $0.37 cost). Any storage profits would have to come from higher prices (futures). This means that soybean storage is a speculative strategy!

Higher prices might be possible. Many question USDA's September production numbers and acreage will be surveyed again to determine abandoned acres in dry areas. There are also early reports of some disappointing yields (understand early reports aren't that reliable). Still, current supply and demand numbers indicate large supplies and continued low prices-- higher prices are still just speculation!

When the market isn't offering much for storage, there may be better and less risky ways to speculate. Whether elevators can accept or move grain quickly enough, availability of on-farm bins and cash basis income tax consequences also enters into storage decisions. However, when futures prices are below loan rates, selling cash soybeans and claiming the LDP recovers the weak basis in addition to netting the loan price--maybe more if you can sell on a "higher price day." You'll give up the market carry, but reowning beans on paper (futures or options) may offer a less risky speculative strategy than storing beans.

Claiming the LDP doesn't change much. A cash sale now for $4.50 plus an LDP of $0.79 (MO 9-21-00 average) nets $5.29. Collecting the LDP and storing projects a net of $5.31 ($4.50 current cash price plus $0.39 basis gain and carry minus $0.37 storage plus $0.79 LDP = $5.31), a difference of two cents for up to four months of downside price risk! Higher returns will take higher prices. Speculating with stored soybeans is a risky decision. --Melvin

**Market Outlook Conference, 7:00 p.m. October 3, 2000 at Fayette Branch of Glasgow Coop, Fayette.**


University of Missouri ExtensionDecisive Marketing - September 22, 2000
http://outreach.missouri.edu/agconnection/DCT/DM000922.html -- Revised: April 20, 2004
breesm@missouri.edu