The market is always right. Even when, as is the case in soybeans right now, it doesn’t make much sense.
Fundamentals remain bearish, despite a few helpful trends. Brazil’s crop is getting smaller and is likely around 75 million bushels less than USDA currently projects. China is buying and taking delivery on U.S. soybeans again, as negotiators try to hammer out a trade deal that’s about much more than agriculture.
But it’s hard to see how U.S. export hopes can exceed the estimate put out by USDA Feb. 8. Even with current shipments and what we know about sales – some data is still waiting to be released – U.S. commitments to China are down by as much as 550 million bushels. That’s just too large a hole to overcome, at least this year.
As a result, the U.S. is likely to have around 900 million bushels of soybeans on hand when the marketing year ends Aug. 31. Export demand may pick up next year, but China may never be the growth engine it once was, thanks to a slowing economy, aging population and fundamental changes to its hog industry that may make permanent changes to reduce protein levels in feed.
As a result, even the reduction in acres we found in our recent survey may not be enough to keep ending stocks from nearing 1 billion bushels 18 months from now. The wild card, of course, is weather, after an unprecedented six years in a row of above normal yields.
Due to that uncertainty it’s not unusual for November futures to hold up into the growing season, even in years of bearish supplies. But both November and July are tracking bullish patterns of higher lows after bottoms were put in last fall. That has old crop on the verge of a breakout that could keep prices rising into spring, and perhaps beyond.
Despite this irrational exuberance, or perhaps because of it, think long and hard about storing too much inventory unpriced. With sales made last spring at higher prices and Market Facilitation Program payments, most growers I talked to this winter have a profit. There’s no shame in taking the money – and running.
New crop soybeans remain at unprofitable levels for the average grower, especially with weak basis added in. Yet the ratio of soybean to corn futures has turned in favor of soybeans. That may be attracting more acres that could only make matters worse a year from now.
It’s hard to be bullish about soybean prices when the supply and demand table for both 2018 and 2019 marketing years is bearish, more than doubling levels left over in 2017.
Soybean supplies on Dec. 1 were up in every major growing state except Missouri, one reason for the exceptionally weak basis seen this year in the cash market.
The U.S. ratio of projected soybean ending stocks to usage is expected to soar this year to its highest level since the farm crisis of the 1980. The global situation is even worse.
China’s share of the world soybean export market is down for the second straight year, as the demand boom shows signs of a permanent change.
Both old and new crop futures show a pattern of higher lows and higher highs, the pattern seen in bullish years when prices keep rising.
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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.