Is that what will happen to the 2012 crop, and when the market gets all the soybeans it can obtain, will the inverse carry disappear and the soybean market climb again next spring? Johnson believes the market fundamentals are currently in place for that to happen. So how should someone with beans in the bin, work the market? Johnson suggests unloading cash beans now to prevent the market from declining as it appears it is with progressively lower prices through next summer. With the proceeds, Johnson suggests purchase of a July at-the-money call option. The lower price of the July contract will reduce the cost of the option premium, and the option eliminates the risk of lower futures, should the market not return to higher prices.

Would the strategy have worked in 2003-2004?

Johnson says the strategy would have worked handsomely nine years ago. And he says if futures rally on continued concerns of South American weather, owning the call option could be more profitable than owning the soybeans with the cost of storage and interest. As prices rose in 2004, and as prices may rise in 2013, you would sell the call option to capture greater profits.

Summary

The soybean market is paying for soybeans now, and offering much less money through next summer. At that time, the inverse carry would be reflecting the expected large supply of soybeans coming from South America. While soybeans hold more value now than they will next spring, selling cash beans now and purchasing a July call option will allow the holder to recapture some of the higher prices that could occur for soybeans, should there be weather problems again for Brazilian and Argentine producers.

 

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