For the past two weeks soybean futures have traded back and forth in a 30-cent trading range. Prices seem content to continue in this pattern for the short term until fresh fundamental news emerges to finally justify a price breakout.
This week’s USDA report had both bullish and bearish aspects in it, which continues to keep soybean prices in a modest trading range for now. Yet, a price breakout looks to be on the horizon. Here are three important indicators to watch in the short term:
Looking at 5-year and 15-year seasonal patterns for November soybean futures, two items stick out. The first is that during the first two weeks of May soybean prices often have a tendency to endure choppy sideways trade. (You can see it on the seasonal chart in the area highlighted in yellow.) This is the price pattern that is also occurring currently on the November 2020 daily chart.
The second item that catches my attention is that on both the 5 and 15-year price patterns, soybean futures have a strong tendency to rally starting in late May.
2. Old crop ending stocks
On this week’s WASDE report USDA reduced 2019/20 soybean exports by 100 million bushels. This makes sense considering that Brazil has captured much of the export market to China in recent months because the Brazilian currency is at historic lows. This reduction in exports then allowed for U.S. 2019/20 ending stocks to increase by 100 million bushels, with ending stocks now up to 580 million bushels (or a 54 day supply) which is the second largest amount in the past decade. This large increase in ending stocks was somewhat already priced into the market, as trade was well aware that our U.S. exports were lagging overall.
Already looking ahead, the next monthly supply/demand from USDA will be released June 11. It will be interesting to see if exports increase or decrease in that report, and much will obviously depend on the export pace in the coming weeks. Also on that report, there may be a revision to 2019/20 production. This month USDA's National Agricultural Statistics Service (NASS) will contact survey respondents in North Dakota who had previously reported unharvested corn and/or soybean acreage (due to the extremely late harvest). If the newly collected data justifies any changes, NASS will update the Jan. 10 estimates in the June 11 Crop Production report.
3. New crop ending stocks
This is exciting! In Tuesday’s report, USDA projected new crop demand increased for both the crush as well as exports. Soybeans to be used for crush during the 2020/21 crop year are pegged to be at 2.13 billion bushels, up from 2.125 billion bushels this year.
Even more exciting is that te USDA feels that our soybean export market will be back with a vengeance next year with export use pegged at 2.05 billion bushels. Because of this, ending stocks are projected to be down to 405 million bushels.
What should really catch your eye is that with carryout of 405 million bushels, that equates to a 34-day supply! That means there can be no room for a weather issue this summer for soybeans. USDA is currently using trendline yield of 49.8 bushels per acre, and if the market at all anticipates lower yields, expect a price increase.
With nearly 60% of the 2020 bean crop yet to plant, and with multiple weather advisories now suggesting summer could turn warmer and dryer than expected, any sign of weather stress could spur soybean new crop futures up to $9.50 in a heartbeat.