Soybean futures seem like they are stuck in a rut with two-sided trade occurring most days this week. As a matter of fact, if we turn back the calendar two months, the price for July soybeans was within a dime of where it sits currently.

Back in January we covered the implications of the May WASDE report that was released this week, and how it was likely to shape prices heading into summer. Now that the trade has digested the new crop balance sheets, the focus will be on weather and demand.

Weather is what it is, and we will have to deal with it as it comes, but demand is where we can form some opinions.

The export demand USDA is using for the new crop soybean balance sheet is 375 million bushels more than what they have plugged in for the current marketing year. Is this a problem and should we expect stocks to grow from USDA’s estimate of 405 million bushels?

Export demand questioned

After this week’s report, some were quick to suggest old crop soybean export demand could still be too high by 50 to 100 million bushels. While this is possible, USDA announced three sales to China this week. As the trade’s focus shifts from 19/20 to 20/21 carryout, we feel the U.S. should have an aggressive export program from late August through December. The US is now 15 cents per bushel cheaper than Brazil on a FOB basis in July. This does not account for quality and ocean freight advantages for Brazil, but we at AgMarket.Net believe China could purchase 10–20 cargos of beans from the U.S. per week now through harvest.

Related:How WASDE wobbled grain prices

If this is the case, the market should work on convincing producers to move soybeans which will happen through a combination of basis, spreads, and flat price.

An eye on basis

It is hard to say at this time which will be most significant, but basis is strong and near the highs of the year for the export market. Spreads have already taken away the incentive for producers to plan on storing new crop soybeans in their own bins, much less consider paying for commercial storage. November ’20 soybeans are trading at a premium to July ’21. Over the last six months, any periods where Nov ’20 has traded at a discount to July ’21 have been few, far between and short lived.

Lastly, the charts for November soybeans on a continuous basis should give us a bit of solace as well. The last time a prompt November soybean contract closed the week below $8 per bushel was the week of May 11, 2007. Since that week -- and we are talking thirteen years here -- there have been only two weeks where the front November contract has traded below $8, and neither of those weeks saw a weekly close below $8.

Related:USDA report lets us down easy

While I will not say that the November ’20 soybean contract cannot change that pattern, statistically speaking two weeks out of a six hundred seventy-six week stretch suggests it’s a level where we have very good support.

Back to WASDE

Circling back to the WASDE report, one thing to point out is the projected stocks-to-use for soybeans compared to the USDA estimate of average farm price. USDA has not projected a stocks-to-use ratio below 10% for soybeans since 2016’s estimate of 7.17%; the report released this week indicates a 9.39% stocks-to-use ratio.

While the projected 20/21 ratio is not quite as low as the 16/17 projection, the 20/21 average farm price of $8.20 is significantly lower than the 16/17 average farm price of $9.47. It stands out even more when compared to the 18/19 and 19/20 projections of 22.89% and 14.87% respectively which were accompanied by average farm price projections of $8.48 and $8.50.

Maybe we need to keep in mind the drag soybeans will likely feel from low corn prices.

With all that being said, let’s hope the Chinese don’t neglect soybeans moving forward.

Contact Brian Splitt directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT.

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