Jon Scheve with weekly market commentary made on Jamuary 3, 2025
Over the past two weeks, it’s felt like there were 4 Mondays and 4 Fridays. During this time corn futures have rallied 20 cents and beans 40. That same period saw basis drop as futures continued their assent as there was significant farmer movement in both crops. Nearly half of the futures gains of the past 2 weeks were lost today alone in both corn and beans.
Traders are likely waiting for one of the biggest reports of the year next Friday on January 10th before they pick a direction to push this market.
Market Action
As I have previously shared, I have 100% of my 2024 bean futures priced at the equivalent of $11.30 on January futures. On December 10th, I noticed that posted basis values began to fall in my area, as shown in the chart below.
I was then offered an opportunity to sell my beans, picked up on my farm, for 10 cents above the best posted value I have seen all season in my area, so on December 16th I set my basis and began to ship my soybeans.
Why Did You Make the Trade?
With the cash value of beans on that day at $9.75, and assuming an 8% interest rate on an operating note, it costs me 6.5 cents per month to hold my beans in the bin waiting for better basis values. On December 16th, the January to March futures spread was only paying about 5 cents for two months of time value, which is less than value of interest on my money.
At the time I made the trade I was uncertain how much the basis could rally between January and March. I was concerned that I might not be able to make up the cost of interest with a basis rally if I were to hold my beans longer. Therefore, I decided the best risk management plan for the beans in my local market was to set basis, move the beans, and be done for the 2024 soybean marketing year.
With that -.25 basis value, my final 2024 cash value for my beans was $11.05 per bushel, picked up on my farm.
Bottomline
The high cost of interest on my money is a big reason why I dislike holding soybeans very long. A 6.5 cent interest cost per month is a lot, and with the spreads between futures contracts not being very wide the upside basis potential doesn’t seem worth the risk this year.
A case could easily be made that great South American weather could lead to a large crop there and a drop in futures prices in the coming months. This could lead to US farmers holding on to their grain and hoping that it will force end users to increase basis prices in the spring or summer to encourage grain movement.
However, for me that is a lot of unknown variables, and the risk verse reward just isn’t worth it to me. Therefore, I felt the right decision for me was to simply take the best basis opportunity I had seen this year and move on.
If you would like to know more about how basis, spreads, and futures all effect your bottom line reach out to me at:
Jon Scheve
Superior Feed Ingredients, LLC
9358 Oak Ave
Waconia, MN 55387
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