With all the talk of record yield this, and record production that in soybeans, it may come as a surprise to some just how bullish the commercial side of the market has become. New-crop futures spreads are all showing strong uptrends, led by the front running November to January as it trimmed its carry to less than 7 cents on Friday's close, and its percent of total cost of carry (full cost of holding grain in commercial storage) to less than 44%.
Despite those changes in the market, the real story remains the last vestige of interest in old-crop supply and demand. The lightly traded September contract, used for little more than an indicator of the spot-market, has seen its inverse against the new-crop rocket higher this week, posting a close of $1.24. This was a gain of 73 1/2 from last Friday's settlement.
National average basis (bottom chart) has followed suit, with the DTN National Soybeans Index (NSI.X, national average cash price) calculated at $11.83 Thursday evening, $1.45 over the November contract. Given Friday's action it would not be surprising to see basis jump another 10 cents or so, putting it within striking distance of the recent high of $2.10 over (blue line, bottom chart).
So what does all of this mean? My interpretation should come as no surprise: U.S. supplies, approaching the end of the marketing year next Friday, are nowhere near the 140 mb estimated by USDA in its August report. Remember that this figure was only made possible by USDA "finding" another 25 mb to push residual use to (-94) mb. It has also been forgotten that the 140 mb, regardless of how fictitious it might be, still results in a record low ending stocks to use figure of 4.2%.
Given the action in spreads and basis, one's mind wanders to how tight the supply situation may actually be.
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