July is considered "old" crop and November is considered "new" crop. A large part of farmer selling occurs during the winter months and drives prices down. The idea is that supplies of old crop beans dwindle as spring approaches and the thus the July contract becomes more valuable. The November contract does not keep pace since the market expects to have fresh supply coming in from the harvest of new crop beans in October/November. Historically old crop beans will peak around May 15 and then again around July 4th and then there will be a frost scare in September driving prices up that month just prior to a final downturn. In any event, the July contract will tend lose ground to the November contract after May 15 , when new crop scares may carry a premium in the November contract. To look at the seasonality of beans, pull up a Soybean perpetual chart and you can see it. Look at Summer 2004 and see the massive amount of money that could have been made on the downside. You can see the frost scare bounce as well. There is also a well known "February break" each year prior to the beginning of a rally towards May.
I did fail to mention all of the other weather scares here and in South America. They do however tend to fall in line with the same seasonality that is already present in the marketing year. Basis Traders and Institutionals are a factor that I have never needed to consider in my grains trading. I spread trade on seasonal tendencies. When I do trade without a spread, it is generally based upon technical analysis. Any entities in the market reveal their tendencies to me in the Price Action and TA. A person could probably make a valid point and it would be well taken for understanding the market participants, but I have not needed this in the past. This could be because I can stand in there for months at a time holding and adding to my position without the threat of any margin call. I am very conservative and grains are but a small part of my overall strategy.
I am just curious. I am trying to learn about spreads, and your information has been helpful. What is your expected profit potential? So right now you expect july beans to rally faster than nov beans; therefore the spread should narrow. Am I correct in that assumption? Basically the price of your July beans are 11 cents less then the Nov beans? Regards, Steve
yes , I am looking for July to gain on Nov in relative terms. They both can decline or they both can increase, but I want July to gain on November and narrow the spread. Perhaps the July will even pass the November in price. I don't really have a profit target, just a time target of early to mid May. Yes , the July was 11 cents less than the November contract today.
Back from Hawaii I just covered my March Wheat short from 350.25 at 368.25. I have rolled the short into May by shorting May Wheat at 380.00. Loss on position so far 18.00. Short May Wheat for now
Further review shows me that this is a good place for me to add to my position. I have doubled the position in May Wheat at 380.00
Welcome back! What is your opinion about soy beans? What makes you so bearish about wheat? Any techincal indicators? Fundamentals? Regards Steve
Not a huge opinion right now except that I will maintain the long July/short Nov for now. Market looks directionless, but seasonality leans towards the long side for outright trade. Funds are itching to get long as well and if they come in, you won't want to be short.