May 2018 was the last time soybean prices averaged better than $10/bushel. After almost 30 months, it looks as though we’ll meet that average once again.
What happens now? Many soybeans will be sold soon, either off the truck or by early next year. The expectation is that sometime early in 2021, China’s preference will shift to South American soybeans. The January soybean futures price Wednesday settled almost 15 cents higher than the March contract, meaning the demand for soybeans is expected to diminish early next year.
A common question at this time of the year is whether farmers should retain ownership of those soybeans.
“We’ve done some option spreads. It keeps your foot in the door to retain some upside in case Brazil and Argentina stay dry or if some heat impacts that South American crop,” says Curt Kimmel at Bates Commodities in Normal.
Putting some time into those options seems to be the preference among brokers.
“Early in my time as a broker and analyst, March options just tended to expire worthless more times than not. If you’re going to re-own, the best two months are May and July. So if you happen to get a March rally, and that’s all you get, you still see the results of that in your May contract,” said Merrill Crowley of First Choice Commodities in Watseka.
The problem with extending values in these options can often be the price. Is the investment worth it, either for corn or soybeans?
“You don’t get to participate in it without the risk,” said Brian Chastain of MarketWise Ag Services in McLean County. “When you look at the July corn contract, I went back and looked at the last five years, and one year of the last five we were at slightly higher levels until about the first week of November. Then it takes until late May or early June before we get back to these levels.”
Chastain said what worries him is that instead of buying an option, farmers will continue to hold the grain, carrying 100% of the risk. Even if they are not paying for commercial storage, it can still be a risky move.
“You’ve got your interest costs on the money, so that’s a consideration as well. For eight months at a penny and a half of interest, you’ve got 12 cents right there.”
As of Wednesday’s close, that’s more than the carry from December to July futures.