Soybeans Pack a Bag, Destination Unknown

November soybeans entered the delivery period this week, and on first notice day 2.2 million bushels of soybeans were delivered against long futures.

For those not familiar with the delivery process: When a futures contract nears expiration it goes into the delivery period, and first notice day is when the first deliveries can appear. Market participants who are short futures have the option to deliver against long futures holders. If a large number of deliveries occur it is generally considered bearish price, with the idea being that the futures price is higher than the actual bid available in the physical market.

However, there are other factors at play. Delivery prices for soybeans are based primarily on river market locations that are more heavily influenced by the export market, which has historically been the best bid. With the Mississippi River near record lows, barges are not able to load as heavily to float down the river and freight costs have climbed, decreasing the value at the river terminal locations. At the same time this is occurring, soybean crush margins have been solid and increasing along with crush capacity, which has pushed soybean basis bids higher around the countryside.

Another wrinkle in this mix is that carry in the market has been increasing. November soybean futures were a 24-cent discount to the January soybean futures, which is a record amount of carry. Carry is what the market will pay you to store grain to sell later; the more carry there is, it is generally accepted the more bearish a market is. But again, this isn’t necessarily the case with the soybean market. November 2023 soybean futures have been hovering near $13, which is a $1.30 off the highs of the year but $1.70 off the lows. Compare that to corn market which also has a fair amount of carry, but is trading on the contract lows for the year and is not going to be mistaken for anything but a bearish market searching for a seasonal low.

Corn doesn’t move down the river this time of year, but soybeans do. Not only do soybeans move now, they need to move now. South America harvest starts in January and is in full swing by March, and recent history has shown that U.S. soybeans cannot compete in a spot March-to-April market with Brazilian soybeans.

With increases in domestic demand for soybeans due to expanding crush capacity, and a global market where South America continues to take market share from U.S. exports, we should expect to see more unusual behavior in the future that could leave traditional/seasonal traders frustrated if they don’t update their guidelines.

Have a comment or question? Please reach out to derrick.hermesch@pinion.global.com.