What to Do if You Missed the Rally in Soybean Prices

Were you on vacation last week?

Did your power go out?

Maybe even stuck and eating your way out of a bin of soybeans…

Because these are the only way that you likely didn’t hear about Thursday’s bullish WASDE report for soybeans.

The USDA cut the average yield estimate for soybeans from 49.9 bushels per acre to 49.5 bushels.

Markets had expected the agency to hike the yield figure to 50.0, with many analysts projecting higher estimates.

The surprising announcement fueled a buying frenzy on Thursday and Friday. The front-month November contract jumped above $10.00 for the first time since Aug. 1.

Since Thursday’s open, November prices have increased by a little more than 35 cents.

The spot price ticked back above $9.50 for the first time since Sept. 22. Many farmers are wondering if soybean prices will approach the $10.45 level  we saw back in January (or higher).

As Brennan has said before, farmers like to act like casino gamblers with their crop. In reality, they should be managing their crop the way a hedge fund manager operates a stock portfolio.

You have to know when to take your gains, and when to wait for the market to go in your direction.

If you were on the fence on selling this week, here are the three big factors to consider as we go deeper into the fourth quarter.

Bullish on South America?

Just a few weeks ago, we noted how Brazil has emerged as the most bearish factor in the soybean complex. Farmers had grown so many beans that they had run out of space to store their crop. In addition, plunging corn prices forced farmers to dump that crop. They are now hoarding soybeans in hope that a better price will come along.

But the narrative has changed a bit. As Brazil began its planting season, dryness has affected key soybean regions across the country. It is far more lucrative to plant soybeans in Brazil right now. However, concerns about rust disease will be a major factor in the months ahead.

Through the first two weeks of October, Brazilian farmers had only been able to plant about half of what they did a year ago. They have a lot of work to do to catch up.

Argentina meanwhile has experienced a 35% delay in corn sowings. Flooded fields have pushed farmers to plant early soybeans or late corn as a result. That said, the country is expected to have less planting this year due to the massive carryover last year.

Who Will Affect Soybean Prices?

The most likely place where we’d get any major swing would come from reports at CONAB or the Buenos Aires Grain Exchange (BAGE). CONAB has already said that, for soybeans, they foresee the “possibility of better profitability in relation to other crops.” They also increased their acreage forecast “in practically all the main producing states” [1] Total soybean acreage will increase by 2.7% to hit 87 million acres.

While weather has led them to cut production expectations in both corn and soybeans, they still expect output between 106 and 108 million metric tonnes of soybeans for the 2017-18 crop year. The USDA figure sits at 107 million metric tonnes.

Keep in mind, these production totals are still quite large.

While the markets have priced in these output declines, it would take a rather significant weather event or cut to total production to fuel the type of surge that we saw on Thursday.

Weathering the Storm for Soybean Prices

We can spend a lot of time talking about rains from yesterday and rain tomorrow.

But the bigger factor to consider is the ongoing effects of La Nina. In September, the Climate Prediction Center put the odds of a La Nina event in the Northern Hemisphere fall and winter/Southern Hemisphere spring and summer placed at a range of 55% to 60%.

La Nina has a historically strong correlation to bad crop production levels in southern Brazil and Argentina during the November to January months. DTN senior analyst Darin Newsom has laid the case that 2017 could mirror 2010 when the last La Nina took hold. The following year would experience worsening soil moisture and more drought (2018/2011), and 2019 would see real drought and a total lack of subsoil moisture (like it did in 2012). [2]

That is the most bullish weather case we’ve seen.

When it comes to those types of odds, the question is whether “you feel lucky?”

Another November WASDE Surprise?

As noted, the most recents WASDE still projects that Brazil will produce 107 million metric tonnes, while Argentina is set to produce 57 million metric tonnes. Thursday’s gains immediately had farmers thinking about how the USDA would react in the upcoming November report.

The agency just shocked markets with a large cut by historical standards to yield expectations.

What really are the odds that the USDA will continue to pull yields down further?

We’re going to dig deeper into those numbers on Wednesday.

In the meantime, typically we see the market price in some South American planting premium in late October/early November. This would be the same type of weather premium that the markets price in on the North American crops in late May/early June.

Do we think that soybean prices could go higher? Simple answer is yes.

The more complex question to ask is ”until when?”

Considering the similarities between last year and this year’s soybean prices, you could argue that the market will see the top of this rally in late November like it did last year. We’re already not far from those highs of nearly $11.00 on some of the deferred delivery contracts.

It then found some more legs in mid-January when it topped out for the highs of the year near $11.00.

However, it’s been a dry start to the Brazilian growing season, echoing that which was seen in 2015.

That November, we saw soybean prices on the Chicago Board of Trade rally slightly above $10 before pulling back.

We’re not trying to tell you when the top of the market is going to come, but just understand that as we get back into double-digits, there is an increased likelihood that prices will fall.

How to Get the Best Soybean Prices

And If You Were on Vacation…

Remember, if you ever do find yourself sitting on a beach, riding up a ski lift, or thousands of miles from your farm, you can still post your grain on FarmLead and find willing buyers all across North America.

We’ve had customers share their success stories of locking down a deal and getting such a great price that they could stay an extra day on vacation.

It doesn’t matter where you farm, what you farm, or how much you are growing. FarmLead gives you more access to buyers than any other platform in the industry.

In fact, you can even set your own cash price that is higher than market value right now or trade on basis. If the market continues to go higher, just set your price and forget it. Then let the buyers come to you.

Be sure to sign up today and get our daily market coverage.

And stay tuned for a big announcement about a new tool we’ll be releasing that will help you get the highest price possible anywhere in your region.

 

 

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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