A buck a bushel rally is nothing to sneeze at. But the July bounce in beans is cold comfort for growers still staring at losses of that much or more on their 2018 crop. While there’s upside on the chart if futures can hold the rally, getting prices back to profitable levels looks like a long shot.
The big hurdle in the short run will be USDA’s first estimate of production based on surveys of farmers and their fields on Aug. 10. Our Farm Futures survey suggests trouble ahead.
We found yields of 49.8 bushels per acre nationwide for a crop of 4.42 billion bushels, 30 million higher than last year’s record. I’ve dialed in some good demand due to low prices, but carryout could still be a record 668 million bushels by the end of the marketing year in 2019. The crop could be bigger, too, depending on how August finishes, which would make matters worse.
Forecasts for the rest of the month show some rain, but also a tendency for warmer and drier conditions around the Great Lakes. But changing the fundamentals of the market won’t be easy.
Chinese tariffs remain a scar on the psyche of traders that may linger judging from the way futures traded headlines furiously over the past few weeks. China has plenty to lose from a trade war with the U.S. It’s major stock market is trading near two-and-a-half year lows, and the yuan is crumbling, likely with a shove from a government willing to risk a currency war to bolster exports. Chinese leaders don’t face elections but they do have to worry about public opinion, something’s that’s easier to control in a society with no free press and internet censorship. So they may be willing to play long ball, stonewalling the U.S. while using the moment to build trade relationships around the world.
U.S. exports won’t dry up in the meantime. The cost of soybeans for October delivery out of the Gulf is $1.75 cheaper than out of Brazil. And Chinese soybean prices are trading near contract lows and stocks at ports remain very high after a surge of buying in June. Nonetheless, margins for processors are dismal there.
Here in the U.S., crush remains strong, though margins broke from very high levels. Demand should stay good into 2019, but not good enough to cope with burdensome supplies.
Funds remain very short soybeans, so short covering could add to gains. November futures have upside targets at $9.70 if the market can stage a counter seasonal rally. But any gains now are fighting against tendencies for futures to slide into September.
Fortunately, most growers forward priced some new crop when prices were above $10. The only sales worth making now might be to buy some cheap September puts for those wanting to gamble on a big production estimate from USDA Aug. 10.
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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.