Farm Progress

The experts are scratching their heads over why soybean prices are so high right now.

Maria Cox, Blogger

December 20, 2016

3 Min Read
keattikorn/Thinkstock

What were you thinking about as you passed the mashed potatoes this Thanksgiving? For me, it was soybeans. November 2017 soybean futures closed above $10 per bu. on November 21. This was about the time when I started waking up at night and thinking about all of the soybean sales I should have been making. I couldn’t get it out of my head and even discussed it in detail with my relatives at Thanksgiving.

My breakeven price per bushel is $8.75, give or take $0.25 in either direction depending on the particular farm. If I sell soybeans for $10 cash, we profit over $1 per bushel. Should I sell soybeans? If the answer is yes, what percentage of production should I sell? The experts are scratching their heads as to why soybeans are so high. More acres going to beans next year, big carryout, and decent South American weather point to much lower prices. The experts recommend selling new crop and also to sell a decent amount of production. Farmers are hearing this at winter marketing meetings, but are they pulling the trigger?

I’ve decided that 1) yes, I’m going to sell soybeans, and 2) I’m going to take a big position and sell a large percentage of production. Funds are long over 100,000 contracts. If the funds start selling, duck and take cover; there’s no stop to the profit taking. Have we forgotten that the soybean daily price limit is 70 cents? That makes us just a couple of trading days away from sub $9 soybean futures.

Break down of my soybean sales:

I am 40% sold with hedge-to-arrive contracts ranging from $10.15 to $10.35 November futures at the local elevator. The current fall basis is $0.40 under November futures, and I’ve chosen to set the basis later. I was able to capture $0.20 in basis improvement with the 2016 crop, and I’m hoping to have similar success for 2017.

I sold another 30% of production last week through hedge-to-arrive contracts at $10.22 November futures. I also bought out-of-the-money $11.00 short dated November calls. These calls expire in August and cost $0.26 per bushel. The cost of the call brings the floor price to $9.96 futures. I’ll own the calls through the rest of the South American growing season and the U.S. planting and growing seasons. If something out of my control makes the market increase, my calls will be worth more.

These calls have allowed me to lock in a profitable floor price but have also allowed me to participate in upward market movement.

I don’t claim to have all of the answers, but my plan is helping me sleep better at night. 70% sold prior to the new year has taken some courage, but I can always switch more acres to soybeans if prices hold around $10.00. As I pass around the mashed potatoes this Christmas, I won’t be thinking about soybeans. Now, about that corn crop…

 

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

About the Author(s)

Maria Cox

Blogger

Maria Cox is a sixth generation grain, livestock, and hay farmer from White Hall, Ill.  She has been farming with her family since 2012, and also has experience in grain marketing and crop insurance.  She holds a M.S. in Agricultural Economics from Purdue University and a B.S. in Agribusiness from the University of Illinois. You can find her online at www.coxlandandcattleinc.com and twitter @mariacoxfarm.

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