August 6, 2018
Soybean bulls are hoping to find some renewed momentum to take out last weeks high of $9.22^2. We made the push on what was perceived to be improved trade talks with the Chinese. Those headlines were then "Trumped" by talks out of Washington that we could be raising the stakes by increasing tariffs form 10% to 25% on an additional $200 billion of Chinese imports.
From my perspective, the market seems comfortable hovering around the $9.00 level until more is known about Washington and U.S. weather. The USDA report coming out on Friday could also bring some additional insight and volatility. Bears want to argue that U.S. yields are moving higher, while the bulls argue that a decline in Chinese shipments have been more than offset by an increase in demand from other nations.
Regardless, it's nice to see the market has recovered substantially from the near 10-year low posted back in mid-July at $8.10^4 per bushel. The biggest question moving forward is how do trade relations with the worlds largest buyer of soybeans play out in the days and weeks ahead? Insiders seem to believe if things continue along their current path, the Chinese will try to string things along into the November mid-term elections, hoping to ultimately put voting pressure on the Republicans. If they make a concerted and orchestrated effort to avoid U.S. soybeans at all cost, I suspect the market could fall under additional pressure. Many bulls argue it will be next to impossible for the Chinese to avoid U.S. soybeans once we move past October.
More than likely the only way that happens would be a sizable reduction in overall Chinese demand, i.e. reducing livestock herd, finding large alternatives to meal, etc... It's hard for many of us to imagine that happening, but we are all very uncertain about how trade relations ultimately play out during the remainder of 2018. Like I've said all along, maybe this all ends in a crazy windfall for U.S. soybean producers? It's hard to see that in the current crystal ball, but I guess anything really is possible. As a producer, I'm holding steady with about 60% of our estimated new-crop production risk removed. I have "zero" of my estimated 2019 production priced.
The good news is, with China relying more heavily on South America, I suspect that makes upcoming South American weather and politics that much more important. Both could be extremely "wild-cards", we will need to be paying close attention to the headlines out of South America in the next few weeks. Remember, next month we should start seeing early corn and soybean planting in parts of central Brazil and Mato Grosso. The clock is starting to move more quickly, so make certain you paying close attention in case we happen to catch a substantial rally which opens up another window to reduce price risk.
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