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| Excellent question. When I get the time, I will discuss the relationships. The old crop futures reflect demand and the spread between the old crop months reflect the cost of carry from one month to another. Seldom do the spreads actually go to full carrying charge (storage, in & out charges, insurance, and interest at the banker's acceptance rate). While the "talk" is acreage, the market is reflecting demand. The grain industry, over the season, makes decisions on what to attract to chicago & toledo delivery points. If the basis and carrying charge on soybeans is more attractive per dollar of investment than wheat, soybeans will be bid to chicago. When speculators get a little excited & bid the spot month out of kilter with the back months of the old crop...the deliveries will force the spread back into line..Keep in mind, the grain industry wants carrying charges and whatever happens in chicago reflects in bids and offers around the world. If the expected carryout in old crop beans were larger...it would trend to a discount below new crop November...however, the past couple of years the projected carryout has not been burdensome. More later. | |
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A Couple of Things
