Market Commentary for 11/1/24
Since late July, January beans have been trading in a tight 70-cent range between $9.90 and $10.60, in 66 of 69 trading sessions. The market has traded outside of that range once below and above twice.
Positive export demand reports this week helped prices bounce off the lower end of that trading range. With harvest complete, it seems unlikely that farmers will pull beans out of storage with values still $1.50 per bushel lower than their breakeven level.
I expect the USDA to decrease the national yield estimate next week in the November report. I’m hearing that many fields throughout the US were impacted by limited rain in August. If the yield decrease is big enough, a price rally is possible.
Unfortunately, a rally could be difficult because Brazil’s planting place has been quick the past two weeks after a late start. Plus, so far weather in Brazil has been favorable for normal yield production and estimates for planted acres continue to increase. The biggest impact on yields will be weather in late December and early January when plants are maturing. If yields end up normal, there is a good chance global bean stocks could increase and demand for US beans may fall, taking prices with it.
Market Action
As I shared previously, I sold 50% of my beans last winter when November futures were $11.66. On the remaining 50%, I traded through some options during the summer that left me with a $10.80 floor value against the January contract with unlimited upside potential through Christmas.
This week, the November futures contract was about to go into the delivery process, so I rolled that 50% of my hedges to the January futures contract. That meant I bought back my current sales and made new sales against the January contract to keep my hedge in place and capture the market carry profits.
I selected January because it had a 15 cent carry profit which covers my interest costs to not sell my grain now and ship it. My interest cost is determined by looking at cash beans being worth about $10 and short-term interest rates for my operation are 8%. That equates to a 6.6-cent cost per bushel per month to continue to store my beans. Therefore, the15-cent carry more than covers my costs to hold the grain in my bins from now until the beginning of January.
While the carry profit after interest costs is not a lot, it is still a small profit, and more importantly it allows me the opportunity to look for better basis values post-harvest.
Bottomline:
I’m now 100% protected to the downside at the equivalent of $11.30 January futures value. Since I still own puts that provide a $10.80 floor price on half my beans, if futures rally above $10.80 before Christmas, I could still get an even higher floor value than my current $11.30 price.
Now, I can sit back and see what futures do with no downside risk for a couple months. Plus, I can watch basis values over the next few months to see if any opportunities become available where I can sell my cash grain. If nothing good comes up by January, I can always roll my sales into the March contract and look for basis opportunities further out in the future.
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