Soybeans can rally just about any time. Those who count on rallies, or count them out, can wind up with pocketbook pain.
But if long-term averages are a guide, the next month may decide whether soybeans return to profitable levels or start another leg lower. Beans with a $10 handle or an $8 are possible.
Volatility in the bean market is under 20% for new crop options, much calmer than seen in wheat or corn. But that still implies a potential November futures trading range over the next month of $9.98 to $8.92. That range likely would increase if the market starts to heat up or fall apart.
A move higher or lower wouldn’t ensure the trend would continue. But on average, once the die is cast, the market keeps rolling in that direction.
Weather, and the market’s estimate of production, likely will be the determining force. Much is uncertain about the size of the crop. The first question of many gets answered, at least partly, June 30, when USDA releases its first estimate of planted acreage. This survey won’t capture all the acreage shifts and double cropped beans, but it’s a start. The June 1 stocks report out the same day may also provide clues about the size of the 2016 crop, both bigger and smaller.
Initial yield projections vary. USDA’s first crop ratings put out Monday range from 48.6 to 49.7 bpa, better than the 48 bpa trend yield used by the government that assumes normal weather. Vegetation Health Index maps point to 47.5 bpa. Both ways of figuring the crop are moving targets that will rise and fall with weather. Some forecasts show potential for warmer, drier weather this summer. Official outlooks will be updated June 15, but all are strictly a dice roll.
Lack of El Nino conditions developing into fall improve chances for weather rallies, but don’t lock them in, either.
Other than weather, the roadblock in the way of rallies comes from South America. The huge 2016-2017 crop just harvested is forecast to take over the export market into the fall. U.S. new crop bookings as the summer starts are the lowest since 2009. That doesn’t mean sales can’t pick up. The Chinese economy appears to be coping with its myriad challenges, boosting potential for good demand growth.
Weather could also hurt production of next year’s crop in Brazil and Argentina. But Brazilian farmers appear on track to increase acreage again, the pullback in soybean prices offset by a weaker currency when reais are converted from the dollars some growers use for pricing.
I’ve recommended being a slow seller of new crop soybeans early because prices fell short of levels needed to ensure profits if yields falter a bit. But the urgency to get more sales of the books rises as the days slowly begin to shorten again. Now is the time to pencil what you need for a profit, or are willing to accept for a loss.
Fundamentals suggest potential for a rally in futures to $10.75, assuming the crop doesn’t grow too much or demand suffer. To get started on that path, November needs a rally past $9.50 to $9.55, with lots of resistance back at $9.80. Short-covering by bearish funds can last a couple of days, but needs a trigger to get going.
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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.