What the Early Harvest & Spreads Might Be Telling Us?
Aug 27, 2012
Spreads have been telling a little different story as of late. There is some speculation amongst the trade that "harvest" pressure might be starting to weigh on the inverse. With weak corn stalks and producers worried about ear quality, corn harvest is rolling along a little faster than many had anticipated. We are also seeing the soybean harvest down to the south gaining steam as well. Cash soybean markets for the week backpedaled a little with August CIF breaking about $0.30 to $0.40 cents towards the end of last week. This pressured the "Sep vs Nov" bean spreads, which might soon give us the opportunity we have been waiting for to get long this spread down around even money. We continue to stay long the "Nov vs Jan" bean spread, even though we have been giving back profits. I am actually starting to get a little concerned about the way this spread has been acting and may have to make an adjustment later this week. My fear is producers may simply opt to sell a large portion of their beans right out of the fields as they cross the scales at harvest. This could obviously pressure the basis for a while and actually cause the SX/SF spread to trade out to a carry for bit. I am just getting the feeling producers are liking the thought off selling $17 plus soybeans right out of the field...and I certainly don't blame them! What a fantastic price. I will be closely monitoring this trade the next few days and will update you in my "Afternoon Comments" if I choose to make an adjustment.
Corn will need to start getting some help from soybeans if prices are going to move aggressively higher. I am a little concerned that producers to the south are not only going to see their earliest harvest ever, but possibly one of their absolute best. With very little storage and some terrific production we are starting to see a ton of corn down south moving into the hands of the commercials. The problem is the commercials down in these areas are starting to move more bushels up to the north than they are to the south. The export market is basically dead, therefore with a cheap basis and no where to store the grain it is being pushed to the north. As the early harvested, good quality corn to the south floods the market and is pushed up to the northern regions, we may start to see the basis loosen up a bit across the board. Ultimately this could cause a little temporary price setback.
Beans are simply a bird of a different color as eventually you will have both the "exporters" and the "processors" fighting over a limited amount of domestic supply. In some areas, it wouldn't surprise me if you eventually see the basis run to $1.00 over, maybe even higher!!!
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