"Spread the Difference" - January/August Soybean Spread

The bulk of the US soybean crop is planted in May and harvested September/October.  Thus, the US Department of Agriculture (USDA) defines the crop marketing year as running September-August, with soybeans from the last harvest still available for delivery in August considered old-crop whereas those harvested in September and later are new-crop.

The most crucial part of the growing season is the first half of August, when pods set the number of beans each plant can produce and yield is determined.  The Midwestern Corn and Soybean Belts overlap, and both plants need sufficient moisture at crucial times for good yields.  Because the corn crop pollinates, mostly determining its yield, in mid July, the soybean industry by then can also much better project how the soybean crop will fare.  Commercial soybean and soy product consumers continue to price their needs, especially for winter when demand soars for soybean meal, a high-protein supplement for livestock feed rations.  In contrast, barring unexpected and extremely adverse weather, producers with old-crop supplies remaining from the last harvest begin aggressively to empty their bins to make room for the new crop.

Thus, new-crop soybeans have usually outperformed old-crop from early into late July, when deliveries against August futures approach.  In fact, Moore Research Center, Inc., has found that the Long January/Short August Soybeans spread has closed more favorably toward new-crop January on about July 26 than on about July 6 in 16 of the last 18 years — in only 3 of which would any daily closing drawdown have exceeded 11.75 cents/bushel. (Each 1.00 cent/bushel is worth $50.00 per 5,000-bushel contract.)

Just as this new year began, the January contract traded at its widest discount to August of -53.50 cents/bushel.  Since then it has been steadily favoring new-crop, with the spread actually trading at a premium in June of as much as +14.75.  But how much the seasonal dynamic already anticipated via price?  Monthly charts illustrate historical resistance typically at premiums in the range of +20.00-30.00, with spreads in only two prior years having exceeded +40.00 — and then only barely and briefly.