Soybeans: It Boils Down to Yield
November soybean futures have been on the defense, peaking at just over $14.00 at the end of August to now under $12.75. This price decline comes on the heels of a slow export pace, a rising dollar, and recent USDA reports either reducing export expectations or adding in bushels from last week’s USDA Quarterly Stocks report. Weaker corn and wheat prices have been an anchor on soybean prices as well. Expectations for more acres in Brazil for the year ahead has traders less optimistic for a price recovery as harvest picks up steam. Yet, snug carryout has us focused on yield.
Looking at the 2023 growing season, most of the soybean belt was plagued with continuous dry weather, however, timely rains were beneficial. Conditions in late August and early September (soaring temperatures and sparse rainfall) had many anticipating that soybean yield, during this key pod-filling time window, would point to lower yield as well. As harvest kicks in, and all eyes focused on yield, we’ve seen varied results. However, it is likely that farmers may have braced themselves for the worst. While it is early in the harvest window, the needle may be pointing toward slightly better-than-anticipated yield. Give credit to proactive farming practices and drought-tolerant genetics. Timely rains, in hindsight, were a big factor this growing season.
Why this is important…
Keeping the numbers simple, a one-bushel decline in yield would suggest prices are undervalued versus carryout, which is currently forecast at 220 million bushes. On the other hand, if yield increases, more downward price pressure is likely, potentially targeting the low in November futures from late May at near $11.30. Crop progress figures (released weekly) indicate 17% of soybean crop is rated poor to very poor. The current USDA estimate is 50.1 bushels per acre. In 2022, the crop the final crop yield was 49.5.
What can you do?
What to do with all the potential price uncertainty is a good question. You can only control what you can control. You can’t control the direction of price. You can prepare for futures to move in either direction.
A strategic and balanced approach is suggested. If not wanting to store, consider selling cash and retaining ownership with a fixed-risk option strategy. If storing, consider protecting your inventory value by purchasing a put option or implementing a put option strategy. As the harvest unfolds and it is determined that yields are considerably less than expected, prices could quickly rally in anticipation of the need to ration supply. On the other hand, if yield results are better than anticipated, you have taken action to defend against lower prices.
The goal in strategic planning is to prepare for prices to move in either direction. Creating a marketing balance in an environment with many unknowns may provide you with the peace of mind needed while you’re focused on fieldwork. Have good conversations with your advisor who can help guide you to implement a strategy that is best suited for your needs and tolerances.
Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
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.