Posted by: usset001 | October 24, 2008

Clues to a stronger soybean market

Futures prices for corn and soybeans seem to be at the mercy of changes in other markets, including financial markets in general and energy markets in particluar. But the soybean market is changing for the better. Here are two clues to the change.

First, I noted last week that the soybean basis is improving. The 100 plus unders of the past year are a memory, and basis levels continued to improve this week. The Southern Minnesota processor bidding 30 cents under last week is now bidding 20 cents under, and the improved tone holds up through the end of the year. A strengthening basis is a reflection of a strong cash market – it may take some time but this strength should eventually find its way into the futures market.

Second, the futures spreads are narrowing. On October 15, I blogged about a wide carry in the soybean market. Nine days ago the Nov’08/Jul’09 futures spread closed at 47.25 cents and, in terms of covering interest costs, it was one of the widest carries recorded in the past two decades. Last night, Nov’08/Jul’09 futures spread closed at 29 cents (Nov’08 @ $8.845 and Jul’09 @ $9.135). The board may be modestly lower than a week ago, but don’t be fooled. A weak futures market is characterized by widening spreads – tightening spreads point to a tighter market.

Maybe it’s time for the soybean market to declare independence from the turmoil in other markets.

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