Here’s a list of why soybeans should keep rallying this spring – and another list showing why they shouldn’t.
On the bullish side, USDA cut its forecast of old crop ending stocks April 10, with world supplies also down due to the drought in Argentina. Crush margins remain strong in the U.S., and in China as well thanks to good soybean meal values that offset higher soybean costs.
Argentina, the world’s largest soy product exporter, is even buying U.S. soybeans so it can maintain production. The government there still depends heavily on soy export taxes and the country’s economy is being hard hit by the drought.
The war of words between the U.S. and China on trade also appeared to cool a bit. The two sides may eventually be able to work out a deal that lets both save face, addressing some of the U.S. concerns about its trade deficit without triggering tariffs against U.S. soybeans.
Seasonal trends also favor higher prices. In normal years, prices tend to keep firming into mid-May. And in years with a bullish trend, like this one so far, they tend to keep going.
Fundamentals also point to more rally potential. The selling range on my S&D table this week for new crop is $10.32 to $11.66, territory November has just begun to enter. November futures have seen some turbulence, but remain in a long-term uptrend off 2017 and 2018 lows.
Bears point to these factors:
Yes, USDA cut its forecast of 2017 crop ending stocks, but only by five million bushels. At 550 million, they’re still the highest in a decade. The stocks to use ratio of 13.2% is also the highest since the 2006-2007 marketing year.
And those old crop leftover supplies could be larger. USDA made no change to its forecast of exports. Sales have picked up recently but remain behind the rate needed to reach the government’s forecast, and could end up 30 million bushels higher.
Chinese purchases are off 19% from the previous year. Other countries are stepping in to pick up the slack, but it may not be enough to make up the gap. Add in tariffs, and the situation worsens. Argetina’s crop estimates probably won’t shrink much more but Brazilian forecasts likely will keep rising.
U.S. new crop carryout could fall, but not by much if yields are normal. And stocks could rise back above 500 million bushels if farmers plant more soybeans than USDA projected March 29. That could happen if fields stay too cool or wet for corn. Farmers may also be lured to step up seedings because they can lock in profitable hedges.
As for those bullish price charts, when November futures made new highs, momentum indications like the RSI did not, which chart traders call divergence. And, while the upside of my fundamental range is higher, that doesn’t mean futures have to get there.
With options relatively expensive, I recommended adding another 10% sale basis $10.50 November, bringing total coverage to 40% using futures/HTAs and options. That’s a little more aggressive than I normally like to recommend this early, but 2018 is a year filled with risk. So, while bulls and bears both have good arguments to make, I suggest erring on the side of caution.
Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.
More from Farm Futures:
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.