Attractive soybean price differentials to other crops told growers in the U.S. to plan more soybeans in 2017. The same math is still playing out in the northern hemisphere, where Chinese farmers will also cut corn in favor of soybeans this spring.
With the new crop ratio of soybeans to corn almost back to neutral, growers will eventually get the message, perhaps even in Brazil. A real near two-year highs will mean soybeans priced in dollars will be less profitable, especially with soybean futures continuing to leak lower. But that’s a story six months down the road. In there here and now, soybeans are weak and likely to get weaker.
The trade is focused on new crop, and all those acres. USDA didn’t do old crop any favors, raising its forecast of carryout 10 million bushels in the April 11 report on reduced residual usage – a tip off the 2016 may have been bigger than forecast.
Ultimately, the government may be forced to change directions on its old crop estimate due to exports that are still running stronger than forecast. China continues to take soybeans and even make some new purchases, and its crush margins have finally improved a little. A weak international vegetable oil market hangs over prices, but the market continues to crush for meal. That’s positive for market dynamics, because oil-led rallies are inherently suspect.
Don’t expect traders to jump on the old crop bandwagon. But lower left over supplies on Sept. 1 could tighten the new crop balance sheet a little. If yields don’t get out of hand, ending stocks on Aug. 31, 2018 may not be quite as burdensome as bears believe.
Tighter overall supplies could provide a little more lift to weather rallies, which are about the only hope for profitable prices as long as production continues go up around the world. Don’t look for these bounces to come soon. If and when they start, if could be from lower levels.
On average, November futures normally starts to rally in mid-April. But the schedule likely was thrown out-of-whack by the strong post-harvest rally. That could push rallies back into the second half of summer, likes a blast of heat threatens corn sooner and takes soybeans along for the ride.
Patience tends to be a virtue in the soybean market. It may or may not pay off this year. But a waiting game is the only game in town right now.
In the meantime, those looking for some upside projection can consider the November $11/$12 call spread for around 15 cents. That could make it easier to pull the trigger, if the rallies come.
For the complete version of this outlook, including supply and demand tables and graphics, along with price charts, click the “Download” button below.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.