For the second straight month soybeans ignored bearish USDA reports with bullish reactions that sent futures charging higher. While there were a few fundamental reasons for gains, most of the rally appeared technical in nature, driven by funds either covering bearish bets or hoping beans will be the next wave of a broader-based commodity rally.
Whatever the cause, the gains are good news for growers hoping to get a head start on hedging 2018 production. Whether current prices yield a profit or not depends on your cost of production. As maps in the PFD version show, break-evens vary widely. In Illinois, where soybeans appear to pencil out best, the market is already in the black. Elsewhere, it will still take some movement to get there.
A glance at the March chart shows potential. After rallying to the last retracement objective of the selloff from December highs to Jan. 12 report day lows, the nearby retreated again, stopping right at the 61.8% retracement of the rebound before the Feb. 8 report. Both 2018 rallies carved out nice channels, with the latest bounce projecting up to the $10.27 top in December. A move past that would take out the high from last summer, opening the market to more gains.
Those who scoff at charts are scratching their heads trying to figure out what’s going on. U.S. exports remain sluggish thanks to slow demand from China. Yet even China’s cancellation of sales announced Monday by USDA and approach of week-long Lunar New Year holidays failed to dent the market’s enthusiasm Monday.
Forecasts in Argentina turned hot and dry again for the next week, maybe more. So far, damage doesn’t look major, with losses offset by gains in Brazil. But harvest in Brazil is going slowly, raising a few concerns about damage from rains.
USDA offset its reduction in Argentine production with an increase in Brazil. While parts of Argentina have been very hot and dry, the Vegetation Health Index map in the full PDF version show these areas for the most part aren’t the ones with a heavy concentration of soybean aces. Still, conditions over the next few weeks should be crucial.
The drought is already boosting U.S. soybean meal exports, with that leg of the complex driving CBOT crops margins sharply higher last week.
So far November appears to be tracking spot on to last year’s pattern for new crop. That rally topped out at the end of February, when it became apparent famers were shifting acreage en masse. While USDA doesn’t put out its first survey until March 30, the agency updates its statistical forecast Feb. 22-23 at its annual outlook conference. The soybean to corn ratio is trading in a broad, narrowing wedge that favors soybeans. And our profit-per acre comparison in key states emphatically says soybeans are the crop to plant.
I’ve recommended being 100% priced on old crop at profitable levels, to turn the focus to new crop. Along with hedges on 20% of production, I recommended options protection on another 10%. It’s probably too early to get more than that on unless you’re willing to commit to buying calls to protect profits against falling yields.
History suggests potential to take November to the $10.40 to $10.60 level this spring if the market can hold together. Summer rallies could go a buck higher if conditions heat up, but that would also buy a lot of acres in South America. And if the funds bail, or China stays MIA, the market might repeat last year’s meltdown into summer.
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.