Harvesting soybeans with John Deere combine fotokostic/ThinkstockPhotos

Soybean Outlook - Stop guessing, start selling

Crop may be smaller, but it doesn’t really matter.

Soybeans could be on the brink of extending an unusual harvest rally. But while there’s hopes for a modest short-covering push, history says those hoping for more will be disappointed. So instead of trying to guess where the market is headed, focus on finding a price where you can make a profit.

USDA didn’t provide any more negative news in its Oct. 11 production, supply and demand report, and even cut a few million bushels off the crop due to reduced acreage. If harvest rains are damaging fields further, production may grow smaller in subsequent estimates. But cuts aren’t likely to change what remains a bearish dynamic for the market. And I’m an optimist compared to others.

China continues to dominate export business out of Brazil as supplies of old crop soybeans run thin.

Indeed, my supply and demand forecast continues to support the idea that exports and crush could turn out a little better than USDA’s forecasts, even if China and the U.S. can’t resolve their trade disputes. China is telling its livestock industry to cut consumption by as much as 10%, but unless the goal is met, U.S. soybeans should still find a lot of demand from buyers who can’t get anything out of Brazil. And so far, there’s no indication Chinese imports are slowing; the pace in September was essentially unchanged from the previous year.

Buyers stockpiled soybeans at Chinese ports and enjoy strong crush margins due to high soybean meal prices.

Chinese buyers have stockpiled soybeans at ports, and the price of soybean meal has surged, so processors can make a profit despite their higher costs. Swine flu and low profitability are hurting Chinese pork production and demand will be hurt by slowing growth. But reductions the government wants will be difficult to achieve. 

Still, even if U.S. business holds up, there should still be more than 800 million bushels of soybeans left over at the end of the marketing year Aug. 31. The surplus around the world could reach record proportions, likely keeping U.S. prices low.

Rains are returning to the center-west of Brazil, with eastern parts of the country also looking wetter into the end of October.

Brazilian farmers are benefiting from prices that are running a premium above the 25% tariff on U.S. exports to China. So farmers there aggressively sold remaining old crop inventory and priced the crop they’re planting now. The value of those soybeans is being dinged by a stronger real, when converted from dollars, with the currency benefiting from likelihood a conservative will win election as president later this month. But weather appears to be improving on from Argentina to Brazil, favoring what looks like a record crop.

My average forecast price for the 2018 crop is just $7.56, right where the cash market nationwide is trading due to very weak basis.

While the mid-point of USDA’s projected price range for the 2018 crop is $8.60, my model puts the average cash price at just $7.56. That’s right where the national average cash price index settled on Friday thanks to some truly lousy basis.

Funds are still short soybeans, which could provide ammunition for a modest short-covering rally in October, but these types of rallies typically don’t last long.

Fortunately, growers with storage won’t have to get rid of this year’s crop quickly. Lack of Chinese buying should spread out export demand through the marketing year, and carry in the futures market of 51 cents to July is providing incentive to hedge and store. Growers who haven’t sold anything would still lose money at current prices. But most growers sold on the spring rally and should be close to a profit right now when government aid is added in. Futures have potential to get back to the $9 but remember the seasonal trend in years of normal production: The July contract on average stalls out by early November.

With the rally starting earlier than normal this year in mid-September, it may end quicker too. Selling into the rally beginning now if you can turn a profit is one way to mitigate this risk.

Click the download button below for a pdf version that has complete fundamental, weather, futures and seasonal charts.

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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.

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