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Solving a grain market mystery: Why did soybeans jump 20 cents in one minute?

Roger Wright, Founder

February 3, 2022

4 Min Read
LED price chart
Getty/iStockphoto

After a rather quiet 9½ hours of trading Wednesday of this week, at 5:33 a.m. Central Time, the March 2022 soybean contract jumped 20 cents in less than one minute. What happened?

We searched the internet for incredible bullish news, but there was none. The fact corn and wheat moved less than one cent indicated whatever it was, it was a soybean event. 

What happened?

More than 99.9% of futures contracts are never delivered because the contracts are offset by an equal but opposite transaction before the month of delivery begins. If you sell a December 2022 contract of corn in May 2022 and buy a December 2022 contract of corn any day before Nov. 30, the CBOT matches your sell (delivery) obligation with your buy (accept delivery) obligation and they cancel each other; that is called offsetting positions.

A long contract (buy obligation) can be offset by a sale of the same contract month. Likewise, a short (sell obligation) can be offset by a buy of the same contract month. It matters not whether one sells a contract first (short position) or buys a contract first (long position). All that matters is do the two contracts offset each other? If so, the futures exchange offsets the two transactions (cancel each other out).

If the transaction bought low and sold high, money is credited to the client’s brokerage account. Where does that money come from? The account of a trader who bought high and sold low.

The futures exchange is not going let a trader lose thousands of dollars on a transaction and then tell him he has to pay-up when the position is offset (liquidated). Each day a trader loses money, that loss is removed from his futures account and placed in the futures account of the trader who holds the other side of the transaction. The futures exchange requires a minimum amount of money to be maintained in both trading accounts when a futures position is “open.” That amount of money is called margin. For corn, the margin is presently $1,525 for each contract; wheat is $1,535 and the soybean margin is $2,650.

When a broker notifies a client that he needs to deposit more money in his futures account, that is a margin call. I always thought “Margin Call” would be a great name for race horse or yacht.

Back to our mystery

That soybean 20-cent price jump at 5:33 a.m. Wednesday was caused by the CBOT liquidating somebody’s very large short (sold) position in the soybean futures. The futures exchanges are authorized to liquidate positions when any trader does not meet their margin call deadline. In this case last Tuesday, it had to have been a very large trader because the number of contracts traded (volume) in that one minute was five times more than normal, causing a violent 20-cent range in each bushel of the 5,000-bushel contract. Check out the minute by minute chart below. 

When the exchange liquidates a position due to client failure to make a margin call, in grain marketing lingo, the trader is “blown out the market.” Extreme and extended price rallies often end with what is called a “blow-off top” which is a chart pattern showing a sudden rise in price and volume, followed by a sharp decline in price also with high volume. 

Blow-off tops are made when traders voluntarily or are forced to liquidate their short (sold) positions. That sudden extra buying of hundreds or thousands of contracts as traders are blown out of the market shoots the market to new contract highs. The bullish consensus is so high, there are very few traders left to buy more contracts because they are already long to the max.

Some of the more memorable blow-off tops were 1983 and 1988 in soybeans, 2012 and 2019 in corn. Was Feb. 2, 2022, the blow-off top on the soybean market? 

Feb. 2, 2022 soybean price spike

Wright is an Ohio-based grain marketing consultant. Contact him at (937) 605-1061 or [email protected]. Read more insights at www.wrightonthemarket.com.

No one associated with Wright on the Market is a cash grain broker nor a futures market broker. All information presented is researched and believed to be true and correct, but nothing is 100% in this business.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Roger Wright

Founder, Wright on the Market

Grain marketing consultant Roger Wright has conducted hundreds of seminars and shared his expertise on weekly farm radio programs as part of his goal to teach marketing concepts to agricultural producers. He was raised on a dairy/hog farm in West Central Ohio and spent four years in the Marine Corps after achieving a Bachelor of Science degree in ag education. He previously taught college-level farm management courses and served as a branch manager for Heinold Commodities and Securities.

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