Soymeal OCT14 (expiry 14 th of october) is currently trading as it was old harvest i.e. trading higher compared to new harvest december soymeal. I read that the harvest will begin between the 20 th of september and 5 th of october for most of the states. I have no idea how much time it takes to bring the beans to the crusher and sell it. Any idea if OCT14 is mostly old or new harvest ? For most of the year ? For 2014 ? (harvest likely to be delayed) Both soymeal OCT14 and soybean SEP14 are currently trading higher compared to new harvest which is held by a large harvest looming.
Someone had a similar question about Oct soybean oil so I looked up the USDA NASS crop progress reports. Over a five year average, about 20% of the US soybean harvest is completed by September 30 (in the drought year of 2012 it was double that). With a bunch of qualifiers - if it's 20% this year, if the early harvest goes to the processor rather than terminal or farm storage, if the processor crushes those beans and ships the products right away, etc - I think it's safe to say that something less than 20% of the soymeal underlying the Oct contract will be made from new crop soybeans.
Thanks for USDA NASS information. I get almost the same information on http://www.nass.usda.gov/Charts_and_Maps/Crop_Progress_&_Condition/ Nevertheless, I disagree with your conclusion of 20 % made from old bean. Old crop soybean is currently way much more expensive than new crop soybean. Crusher crush all year and they crush just a tiny share of the US bean harvest. So they need much less than 20 % of the harvest to crush only new crop bean near this date. So OCT14 should be mostly new crop bean. Maybe it could be old bean for delayed harvest (could be the case this year but even an 2009 harvest should be enough) or northern region. Then, I dont get why OCT14 is behaving like old bean. Any idea ? Bad pricing ? Delayed harvest due to wet weather ?
^ In my last sentence, I say that in the hypothetical case the Oct contract reflects a market where less than 20% of the new soybean crop has been harvested, which means it's basically an old crop contract. To me, today, the inverted market structure makes sense. In reality, it's nearly impossible to say what percent of new crop beans are in Oct soymeal unless one is very familiar with the S&D, tied into the cash market, and knows what areas are being harvested first and whether that harvest is making its way to the crusher, the terminal or staying on the farm. And even if you have an excellent handle on the fundamentals, you can still be blindsided by a quick change in sentiment, e.g. around July 20, 2012 when the news hit the market about three or four vessels of South American corn being imported into the Southeast poultry and hog market. The soy complex inverse story is long in the tooth. If you're new to this market, be careful, because there have been some very crowded trades - N/X for example - and you don't want to be holding the bag when everyone wants to get out.
Thanks for the good threads and posts , Brighton and Rachmaninov. Just a question: How do you know N/X has been a crowded trade? rumors? volume analysis?
I agree with you that its really difficult to know whats going on in the cash market. Even if you know some players, its not enough. And most of the players like to hide what they are doing. Indeed, everyone has to be careful while trading because 50 % of the trades we are wrong. My point was to get an understanding of the current move of OCT14 soymeal compared to the new harvest. I felt that the move was really strong and I didnt find any explanation. I dont think that the old harvest/new harvest could explain the move because its not a new information. Ppl just told me that some crusher stopped crushing because they cant find any soybean. So maybe meal is getting more expensive because buyers will fight to get this OCT14 soymeal ? What is the N/X trade ?
Regarding the N/X trade, I've attached an image. Note: If you haven't tried it, BarChart is a good resource for pulling up current and historical commodity info if you don't want to mess around signing into your trading platform to get it. My point is that those who follow the fundamentals closely and put together their own balance sheets were mostly likely in this trade long ago. I started to hear the chatter about it in April but it was already north of $2.00. I don't follow a lot of people on Twitter (it can be a big time waster) but I think I can pick up some sentiment from those I do follow. Whether independent traders, brokers, analysts or bean pit brokers - there was a LOT of talk about the N/X and a few people I know who had never traded futures spreads before were asking about calendar spread options. So, nothing scientific, just a gut feel that the "public" was certainly on to things and that the easy money had been made. You could certainly have made 30 cents a couple of times in late spring/early summer, then lost it a couple of times, then back to even, then lost 70 cents in early June. IMO, taking that trade in April, unless you were experienced and/or had great timing, would have been a bad move.
Thanks for this story, I didnt know that a lot of people were trading this N/X soybean trade. I am still curious, why people short this spread ? What was their analysis ?