USDA Report Bearish for Soybeans
What’s Happened….
The most recent WASDE report (World Agricultural Supply and Demand Estimate) released this past Monday confirmed that supplies of soybeans are rising. Not only did the report contain a larger-than-expected yield increase, acreage and carryout also grew.
No matter how you slice it, the report was negative for price and the market wasted little time losing close to $0.40 in two sessions. Soybean products were also weaker, with soybean meal breaking into new low prices for the year and oil retesting its contract low. Good weather for crop growth and maturity throughout most of the Midwest is also pressuring prices.
Why this is Important….
The report confirmed that supplies are more than adequate. Consequently, prices needed to drop lower to entice end user buying. Farmers are disappointed that prices have continued to remain in a downtrend. However, with an increase of near four million acres from a year ago and expectations for a record-large upcoming Brazil crop, end users are becoming comfortable with the idea of readily-available supplies.
For producers, it is important to recognize that, when prices trend lower and news remains negative, one should consider defensive posturing. This can be done using put options or short futures if you don’t want to make cash commitments. From an end user perspective, prices are becoming more and more of a bargain. Yet, without a sign that a bottom is in place, it is likely that buying interest by end users and speculators will remain less than aggressive.
What can you do about it?
If you are a buyer of soybean meal, prices are offering excellent long-term opportunities to lock in feed needs at multi-year low levels. Be prepared to lock in 6 to 12 months’ worth of expected usage. An alternative is buying call options to protect the upside for prices while leaving room for prices to drop.
If you’re holding beans in storage from 2023, now may be a good time to sell them. The chances of a weather market are quickly diminishing. There is still more downside price risk. If you are light on sales for 2024 (or have made no sales), consider using option strategies In lieu of contracting. You could purchase November or January put options. If you’re willing to take a risk, then sell an out-of-the-money call against this put to collect premium in an attempt to reduce the cost of the put. Bear in mind selling call options is a marginable position. Only enter this position after serious discussion with your advisor and after you have a thorough understanding of the risk associated with this strategy.
Find out what works for you….
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty