Bean demand remains strong for old and new crop, which caused a nice rally this week. However, there continues to be bearish concerns that China’s 2016/17 imports may not be as high as forecasted — 40 million bushels may not get sold pending who is predicting.
Right now, everyone has eyes on the South American weather. It’s still too early to predict anything other than average yields at this point, so there is likely still weather premium in the market. The chance for La Niña to form continues to drop each week. While massive rains reduced yields in South America significantly last year, it doesn’t mean it will happen again this year.
There are still many questions around how many acres of beans will be planted in South America. Many in the trade believe the farmer in the southern hemisphere will plant as many beans as they did last year. I still believe this is bearish long term barring an unforeseen weather issue.
Market Action – Beans
I moved the following trade where I sold beans against the May futures in April for $9.20 to November futures (trying to gain market carry premium). Here is the summary of what happened.
- Late May moved to Jul for 10 cents carry/grain = $9.30
- Late June moved to Aug for 3.5 cents inverse/loss = $9.265
- Late Aug moved to Sep for 15.5 cent inverse/loss = $9.11
- This week moved to Nov for 17 cent inverse/loss = $8.94
Usually in years with large carryout’s there is a significant market carry premium available. However, this year it didn’t happen. Exports remained strong because of harvest weather issues in South America which kept an inverse in the market, which is unusual. I suspect the widespread disagreement of the exact ’15/16 carryout number is contributing to the inverse as well. Next year will likely be a record crop and this trade might have worked better.
This illustrates that sometimes trades don’t work out like we think they will. While I try to use historical trends to identify possible opportunities in the market in the future, sometimes the market just surprises everyone. Luckily this trade was a small portion of my overall position, it will be put into the 2016 crop year pricing.
2015 Market Summary for Beans
Following shows my final 2015 bean positions. As always I analyze how well I did in futures, basis and market carry independently so that I can identify where I was successful and where there was missed opportunity. All of these combined, I can determine my cash value.
My average futures prices for the 2015 crop was at $10.79.
There were several trades contributing to this position, including my first trade on 10/2/13 for $11.53. I then did four additional sales in 2014 (Mar $11.84, May $11.69, Aug $10.74, Sep $9.97). Most of the trades were puts options or straight futures sales that allowed for more upside potential.
In 2015 the market drifted lower. Unfortunately, I made my final sale in March for about $9 right before the market rallied $3 per bushel. At the time I was happy with $9 as it was $8.50 a month prior. But, nobody expected the bean rally that we eventually witnessed. Luckily this was only on a small portion of my production.
Overall I’m extremely happy with my 2015 futures sales.
This year basis rallied to its highest level around Thanksgiving from the harvest low. Typically there is a basis increase after harvest for beans, but this was faster than normal. Due to logistical reasons I didn’t want to move beans off the farm until after January. With basis so strong so quick, I expected it to continue to rally. Especially since farmers weren’t selling because futures were below $9 at the time.
Then the bean market skyrocketed and basis took a hit as farmers started to sell. Ultimately basis fell apart. I waited hoping for a small basis rally. In mid-June weather rumors made many think another $2-$3 futures rally was possible, and I was concerned basis could go even lower, so I set my basis.
I’m not really happy with my basis price, but it was the same price as my local shuttle loader at harvest. I can’t deliver to the processor during harvest due to logistical issues. Selling at Thanksgiving really wasn’t an option, but in hindsight I should have sold in Jan/Feb, because I could have made an additional 20 cents.
Market Carry on beans is very tricky. Often carry isn’t very large or available in the market because everyone wants beans from the South American harvest.
I captured 16.5 cents market carry (only 2 cents from the year’s high) to move sales out to July.
Since I can’t logistically move beans before Jan, 16.5 cents helps cover the interest expense of sitting on grain for five months (assuming $9 beans with a 5% operating loan = 3.5 cents/month to hold beans).
I’m happy with the market carry trade.
Summary of Trades
Following is a summary of my performance….in baseball terms.
Futures — I hit a home run. Even though I missed out on the summer rally and sold some of my beans for $9, my previous trades in 2013 and 2014 clearly made up for it. Last spring everyone was hoping for a rally to $10. In talking to farmers, most sold as prices neared $10. Few sold above $10, let alone $11. So, I’m very happy with a $10.79 average.
Carry — I hit a home run. I managed to nearly capture the market carry high for the year.
Basis — Pop fly to the outfield, Out. I should have sold earlier. I was greedy and waited too long.
Overall I’m happy with how 2015 turned out. I did well on futures and carry, but not as well on basis. The thing is, no two years work exactly the same. We make the best decisions we can with the information we have at the time and $10.25 cash price is pretty good.
Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at firstname.lastname@example.org.