Field of green soybeans. yelena yemchuk/ThinkstockPhotos

Soybean Outlook - Wait for a second act from soybeans

Growers who sold rally have time on their side.

Are soybeans a one-hit wonder? Growers who make new crop sales on the rally may have time to wait for the answer to that question. 

I recommended pricing 20% of new crop over the winter with options, then doing another 20% with futures or HTA’s on the recent rally. Both of these recommendations were made at prices below the tops of their moves. But that’s not the point. The sales should guarantee a profit for the average grower, as long as yields don’t suffer too much.

And that’s the benefit to the strategy. If yields fall, prices are likely to rally, providing a natural hedge. If yields are good, production costs should be lower increasing profit potential even if the market never recovers.

It’s a market, so both bulls and bears have arguments. Prices sold off not due to USDA’s July 12 report, as sometimes happens. Rather, forecasts for a shift to wetter weather into the end of July, especially on the northern Plains, pushed prices over the edge.

USDA’s numbers were actually friendly. The agency cut old crop ending stocks more than expected and carried the reduction over to new crop. Now the question is whether yields will come in close to the 48 bushels per acre plugged into the government’s forecast for acreage.

The jury is still out on that one, and it will be for a while. Forecasts for August are a dice roll, but have been trending warmer and drier. That could prompt at least a weather scare or two, depending on crop ratings and the size of USDA’s Aug. 10 production estimate.

Seasonal trend charts are also hopeful. November futures have been following the trajectory seen in bullish years, when a late July selloff isn’t unusual. Highs usually come later, not sooner, in soybeans.

Don’t expect bears to give up without a fight, however. They have some ammunition too. Trade in July futures is very thin as it gets ready to go off the board Friday. But it left a bearish island top on the nearby futures chart Thursday, even if only 248 contracts changed hands.

Implied volatility also collapsed after a brief surge, but that may be a good thing for growers looking to pick up call options to cover previous sales. Wait for a pullback by November futures to the $9.50 to $9.60 area before beginning to establish any positions.

The July surge in futures came just at the right time for growers in Brazil, who stepped up bookings for the crop they’ll plant this fall. Gains helped offset some of the impact from a strong real, which was buoyed by the conviction of former president Lulu, who remains very popular and was a leading candidate to return to office.

Brazilian growers are also beginning to eye dry conditions. This is their dry season, so lack of rain is not unusual, but winter rainfall there has been short. Planting can begin Sept. 15, another period when the market can rally.

Soybeans are known for trying our patience. But patience is usually rewarded. Stay on top of costs and yields to figure out where you can sell and take some risk off the table.

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 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.

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