In USDA’s August WASDE report November soybeans were trading in a range from 867’0 to 883’4. Today’s September WASDE report has November soybeans touching 998’0 in the day session.
In one month, soybeans have rallied roughly $1.30 per bu., showing how quickly a trend can change.
Today’s report showed soybean yields were in line with estimates at 51.9 bpa, which is still above trendline yield last shown in the June WASDE at 49.81, but lower than August’s 53.3 record yield estimate.
Recent Brazil production estimates show 126MMT for 19/20 and 133MMT for 20/21, an increase of 19/20 of nearly 4 million metric tonnes and a potential record new crop ahead.
Funds go long
Funds have built a long position close to 200,000 contracts, which is not a record, but it is the longest funds have been this time of year since 2012. Three other years in recent history, 2014, 2016 & 2018 all had funds build a long position that topped out at just above 200,000 contracts before they decided to turn the other direction.
On the flip side, basis is staying firm as buyers are looking to source bushels for the looming export program and production estimates still leave uncertainty ahead. Comments continue to circulate about whether last year’s crop was overstated; are we figuring it out now, while September soybeans are in delivery?
With Brazil gearing up to plant with profit levels 40% higher than the last several years, funds are near record long, and yields are still above trend.
What’s it all mean? September is shaping up as the best month to sell since June 2018.
What are you waiting for?
At some point in the year, you will need to be 100% sold. The soybean price curve has no carry, which means end-users want bushels now.
The price for November ‘20 at 996’0 is higher than July ‘21 at 994’6. It makes marketing sense to sell cash bushels for fall delivery ensuring cash flow and reducing downside risk.
The market is not paying you to store soybeans, even if you have your own bins. If you have the desire to maintain ownership, a simple vertical call spread which is not marginable can be used to maintain length on paper while eliminating the downside risk of the futures.
Take advantage of the recent rally and lack of carry in the soybean market by selling physical soybeans and own July call options to re-own those bushels for upside potential and fixed downside risk.