Seasonally, the soybean market tends to post its low in October, leading to a sizeable rally that ultimately results in a 31% gain in the futures contract (weekly close only) and a 33% gain in the DTN National Soybean Index (national average cash price weekly close only). To better understand the gain in intrinsic value of the market, discounting rolls due to futures spreads, I prefer to look at the seasonal move in the cash price.
As the chart shows, the five year seasonal index (blue line) of the NSI.X shows a low weekly close tends to occur the first week of October at 82% of the average annual price. Interestingly, this is three weeks ahead of the seasonal index for the front-month futures contract (not shown) indicating demand for cash supplies increases as harvest nears its normal end. By the close of the first week of July the NSI.X tends to close at 115% of the average annual price, a gain of 33%.
For the 2012-2013 marketing year (red line), the NSI.X posted a low weekly close the third week of October at $14.88. If the NSI.X stays in step with its five-year seasonal index that would project a target price by early July of about $19.80 (dashed red line). Based on the low weekly close of front-month futures of $15.22 1/2, the futures market is projected to post a high of approximately $19.95.
Comparing these two numbers implies a national average basis (NSI.X minus nearby futures) of about 15 cents under. A look at the five-year national average basis chart (updated each Wednesday on DTN) shows this to be well above the average basis of for that week of about 43 cents under, and also above the strongest basis has been the last five years of roughly 22 cents under.
In other words, and not surprisingly, the cash market is expected to outdistance the futures market due to tight global supplies and continued strong global demand over the winter and early spring. Those who subscribe to DTN's strategies on the Pro System are holding a substantial percentage of cash beans from the recent harvest for this very reason. Those with the Pro System can check its current positions on the table accompanying daily updates.
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