Over the years I haven’t had a lot of rules of thumb about marketing. But one I try to stick to is not recommended early sales in soybeans. This volatile market generally seems to offer a chance of making money at some point. Obviously, the past year or more has been unusual but I followed my guideline, avoiding giving advice to make panic sales.
That patience is finally paying off. A smaller crop that’s likely to get smaller, coupled with a 2018 results that were also less previously reported set the stage for what appears to be at least something of a truce in the trade war with China.
China has booked less than 200 million bushels of 2019 soybeans, so meeting the reported goal of 1.1 billion will take a whole lot of buying, even if some of those purchases are pushed off into the 2020 marketing year. The spread between U.S. soybeans out of the Gulf and export prices in Brazil narrowed sharply on Friday. A lot of buyers from other countries around the world likely spent the weekend drawing up plans of their own to cover needs.
Brazil should have plenty to sell, at least on paper. Soaring U.S. prices plus a local currency that remains near all-time lows mean Brazilian farmers are getting a very attractive incentive to plant all the soybeans they can when sales valued in dollars are converted into reais. Rains finally returned to dry parts of the center-west, but seeding is still off to a slow start. At a minimum that should push arrival of new crop beans on the world market, extending the U.S. selling season.
Argentina also remains a question mark. The peso continues to weaken ahead of elections later this month expected to return the previous government to power. Farmers need a hedge against inflation and their best choice in lieu of dollars limited by currency controls are soybeans. So, they appear to be boosting soybeans over corn. Of course, they may wind up hording the crop after harvest, just one of many uncertainties.
Count Chinese demand as one of them.. African swine fever should continue to hold down the country’s total imports, giving a boost to U.S. hog producers and crushers. U.S. exports in the year ahead could top 1.9 billion bushels, still 10% below their peak, but a definite improvement
Even if crush winds up slowed by Argentine competition, carryout still looks like it could be less than USDA forecast Oct. 10, perhaps falling below 400 million bushels and raising average cash prices near $10.
The cold front brought damaging temperatures as far east as western Iowa, with the growing season ended over much of the west. Watch weekly crop ratings for clues.
Despite all these positives, don’t lose sight of the goal: turning a profit. It’s unclear whether producers will get the second half of the 2019 Market Facilitation Program payment, but the average should still be at least $25. Basis should improve from last year. Carry in shrinking but still offers around a penny per bushel net on hedges depending on interest rates used.
Futures have targets ahead at $9.48 and $9.595. Seasonal trends suggest potential for prices to firm into November, when the next USDA report will present a better idea of supply.
Stronger exports could take 2019 carryout back below 400 million bushels, setting the stage for rallies.
U.S. soybeans out of the Gulf narrowed their discount to Brazilian originations sharply after news of the deal with China came out.
The book of unshipped soybean sales is at a 10-year low, which should cause a flurry of buying in coming weeks.
The ratio of ending stocks to usage could fall back below 10% in the coming year after surging to the highest levels since the farm crisis of the 1980s.
July futures have a seasonal tendency to rally into November when the market must decide whether to keep going or head lower into the South American harvest.
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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.