Did Soybean Basis Top Out?

Jon Scheve explains why the high interest cost to hold his soybeans led to him setting his basis and moving his beans in December.

By Jon Scheve

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January 06, 2025 10:28 AM

Market Commentary for 1/3/25

Over the past two weeks, it’s felt like there were 4 Mondays and 4 Fridays.During this time corn futures rallied 20 cents and beans 40, while basis dropped due to significant farmer movement in both crops. Nearly half of the futures gains of the past 2 weeks were then lost today in both corn and beans.

Traders are likely waiting for one of the biggest reports of the year next Friday on January 10^th 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 10^th, 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 16^th I set my basis and began to ship my soybeans.

Why Did You Make the Trade?
With the cash value of beans on December 16^th at $9.75, and assuming an 8% interest rate on an operating note, it cost me 6.5 cents per month to hold my beans in the bin waiting for better basis values.The January to March futures spread was only paying about 5 cents for two months, which was much less.

At the time, I was uncertain how much basis could rally between January and March. I was concerned I may not be able to make up the interest cost 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 was $11.05 per bushel, picked up on my farm.

Bottomline
The high interest cost 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 didn’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 versus reward just wasn’t worth it to me.Therefore, I felt the right decision for me was to take the best basis opportunity I had seen this year and move on.