USDA had bullish news for the soybean market in its Aug. 12 supply and demand report, slashing acreage more than expected and tightening its forecast of 2019 carryout. Supplies remain burdensome nonetheless, and more questions than answers could keep a lid on gains for now.
Here’s a look at what we don’t know about prices in the year ahead.
Yields. Bushels per acre are always an unknown for soybeans until August weather plays out and late planting should extend the uncertainty well into fall this year. USDA kept its yield unchanged at 48.5 bushels per acre, one-tenth of a bushel above our survey finding, which is were we kept our estimate this week. USDA’s weekly crop ratings and Vegetation Health Index models remain a bushel or two higher. The agency weighs in Sept. 12 with its next survey of growers and data from enumerators out on the field for the first time this season. So far, yields look a little below average, but not a disaster by any means, despite a huge drop in production.
Old crop ending stocks. Leftover supplies of 2018 crop soybeans hinge on two factors. There are lingering suspicions the 2018 crop was smaller than previously reported, which is why I’ve plugged in a higher value for “residual usage,” which USDA uses to correct for mistakes. Sept. 30 grain stocks should show whether this is true.
The other factor is what happens to the record book of outstanding sales, 207.5 million bushels. Some are always rolled to new crop, and others cancelled. But China accounts for half the total and cancelled 15.5 million bushels last week after the government told buyers to stop purchasing U.S. farm goods. July crush reported by members of the National Oilseed Processors Association was a record for the month, which could knock another 10 to 20 million bushels off carryout.
New crop exports. The trade war has no end in sight, which could keep Brazil in control of the Chinese market. Brazil’s stocks are running thin, however, and processors there could wind up importing soybeans, perhaps from the U.S., to fill the window until their new crop arrives in January. But overall Chinese demand looks to grow only slowly due to the lingering effects of African Swine Fever and a slowing economy hurt by U.S. tariffs. So it’s hard to be optimistic about 2019 crop demand.
Argentine elections. President Mauricio Macri, who ushered in pro-agriculture reforms when he won election in 2015, stumbled badly in the primary last week. The two major parties each fielded only one candidate, so this was an initial test of which might win later this fall. Macri got far fewer votes than his rival ticket, which includes a former president associated with policies like currency controls. Argentine farmers horded soybeans back then as their only hedge against inflation caused by a crumbling peso. The currency is even weaker now, and nose-dived following the primary, sparking concerns farmers might again hold production off the market. U.S. soymeal exports surged the last time that happened.
Weather. It’s the dry season in Brazil, so lack of rain isn’t a big surprise. But this year has been very dry, and farmers don’t normally plant soybeans until rains return. Farmers can start seeding in mid-September, and forecasts remain dry for the next two weeks.
The outlook: Without a bad crop in Brazil or lower than expected yields in the U.S. it’s hard to see many marketing opportunities. But soybeans are a volatile market and counting them out can be a mistake. Assuming good crop insurance, ARC program participation and a $50 Market Facilitation Program payment, downside risk looks to be limited to $20 to $25 an acre for growers who can hedge carry and store soybeans on farm. Carry currently runs six cents a bushel per month and could grow wider with the CBOT’s increased storage charges taking effect after November for deliverable soybeans.
Run your numbers now to determine individual farm risk before finalizing marketing plans.
Carryout should tighten in the year ahead but stocks remain more than ample. Rallies are still possible, however, in the unpredictible soybean market.
USDA said states losing acres from its June estimate were also those where prevent plant claims were highest.
A drier than normal dry season in Brazil bears watching because growers there can start seeding in mid-September if rains return.
The Argentine peso crumbled to new record lows as year as President Marci’s hold on power is tenuous. Farmers could horde soybeans as a hedge against inflation, boosting U.S. soybean meal exports.
Brazil exports to China stayed high all year but thinning stocks could open the door for U.S. sales to South America this fall.
November futures couldn’t break through their July downtrend last week, with targets around $9 first if they can.
Click the download button below for a pdf version that has complete fundamental, weather, futures and seasonal charts.
More from Farm Futures:
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.