Todd's Take

Last week, we looked at the question of whether or not to store corn and saw that 40 years of past data suggested a high probability for higher corn prices at the end of March, especially if harvest prices at the end of September were at the lower end of their five-year range. (See DTN's "Should Corn Be Stored?" from Nov. 10.)

This week, we put the spotlight on soybeans and, while the results were similar to what we saw for corn, there was one important difference. Last week's corn research looked at the six-month change in corn prices from Sept. 30 to March 31. I didn't mention that I also looked at the results of storing corn for nine months, because the expected return was lower for nine than it was for six months.

For soybeans, however, storing from Sept. 30 until the end of June nearly doubled the expected gains over the results of storing for six months. For that reason, this week's report highlights 40 years of storing soybeans for nine months, from Sept. 30 to June 30. DTN's National Soybean Index (NSI.X) was the most recent source of prices for this task.*

In 30 of the past 40 years or 75% of the time, soybean prices were higher on June 30 than they were on the previous Sept. 30. To display the data, I created a scatter chart that plotted the percent gain or loss over the nine months, according to the starting Sept. 30 price expressed as a percent of its five-year average.

Looking just at years that started in the lower half of their five-year range, we find that soybean prices were higher on June 30 in 24 out of 30 times (80%). More importantly, the line of best fit for those 30 years indicates a positive expectation for higher prices at the end of June, ranging from a 15% expected gain for a Sept. 30 price at the bottom of its five-year range to a 9% expected gain for a Sept. 30 price at the half-way mark of its five-year range.

With this year's Sept. 30 soybean price of $8.37 3/4 corresponding to 3% of the five-year range, the expected nine-month gain of 14.8% points to a target of $9.62 for DTN's National Soybean Index on June 30. Currently, that almost sounds too good to be true as the index closed at $8.10 Friday, near its lowest level in six and a half years after USDA recently estimated this year's harvest at a record high 3.98 billion bushels.

The fundamental outlook for soybeans currently leans bearish. If prices are going to rally over $1.50 higher by the end of June, they will need some kind of fundamental boost. More purchases from China would help, but the most bullish possibility would be a weather problem in South America as USDA is only estimating Brazil's ending soybean stocks at 36 million bushels in the current season. And, of course, markets also have a knack for surprise that we can't rule out.

Unfortunately, looking at the past data does not assure us that storing soybeans from Sept. 30 to June 30 will always be profitable -- nothing can do that. For that reason, considering the cost of a put option along with the cost of storage is in order. What the data does suggest is that the decision to store will usually be profitable, especially for times like 2015 when the Sep. 30 price is in the lower end of its five-year range. In these games of chance, it helps to know the odds.

*** Because the DTN National Soybean Index (NSI.X) only goes back to 1993, spot futures soybean prices were used in this study from 1975 to 1997.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow him on Twitter @ToddHultman1

(CZ/BAS)

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