In March I blogged about an incredible inverse in the cash soybean market – nearby soybean prices were about $2.50/bu. higher than new crop bids for soybeans delivered in the fall. I saw some evidence that the inverse could continue strong into spring and it has; nearby soybean prices reached $3.50 premium to new crop in mid-May. Summer is looming and it is time to face facts – sometime over the next 90 days, this inverse (like the corn inverse) will be resolved, i.e. “nearby” and “new crop” will morph into one and trade at the same price.
When and how will the resolution occur? Will spot prices fall to new crop levels, or will new crop bids rise to the higher nearby levels? Since 1990, there have been five other years with soybean inverses similar to this year; 1996/1997, 2003/2004, 2007/2008, 2008/2009, and 2011/2012. My definition of similar is years when nearby cash corn prices reached at least $1/bu. higher than new crop bids, sometime in the year before harvest.
When and how did the resolution occur in these years?
1996/1997: The inverse was resolved in August and first-half September, when spot prices crashed down to new crop levels.
2003/2004: This was a wild ride and, as the chart shows, it looks very similar to the current pattern. The inverse was resolved in July, when nearby prices crashed from over a $3 premium to less than a 50 cent premium in less than 3 weeks. Wow!
2007/2008: Resolution came early – in May – when spot prices crashed towards lower new crop levels.
2008/2009: The adjustment was made in late August/early September. My records show that in a period of one week, nearby prices fell nearly $2.50/bu. while new crop bids dropped 80 cents.
2011/2012: Last year was a drought year and, while nearby and new crop prices started to rise sharply in June, the resolution of the inverse occurred in August.
Like corn, the inverse in each of these years was quite volatile, with 25-50 cent swings not uncommon during the summer months. An adjustment is coming and it will be jolting!