Soybeans – Keep a Balance

What’s Happened…

Soybean futures are currently trading at a level where both bullish and bearish traders have strong arguments. After nearly a $1.50 price recovery since bottoming this fall and a trade deal with China, all attention now focuses on weather in South America. This past week, chart formations indicated a head-and-shoulders pattern, which could point to downward price potential. Additionally, when prices began to rally, a gap was left on the charts.  

The ”gap theory” suggests that prices will eventually get to a point where they target and fill the gap. A gap on a chart is left when a price jumps higher from one day to the next and the low for the new day is higher than the high from the previous day. A gap also happens when prices drop, and a gap is formed when prices start lower than the previous day’s low and remain below that previous day’s low. For this article, we will refer to the March 2026 soybean futures, where a gap exists from $10.76 to $10.83. The price of March futures as of this writing is $11.35.

Why this is Important…

It is often said that fundamentals (supply and demand) provide a bias for price direction and a price level. Technical analysis, or the study of price charts, can provide signals to the market for entry and exit points. As mentioned in the first paragraph, a chart formation called head-and-shoulders is currently visible on the soybean charts. This technical chart formation would provide traders with a target if prices were to break below the neckline, a price level that connects the head and shoulders. Bearish traders will argue the world is over-supplied with soybeans and that, with more production expected out of the Southern Hemisphere in the year ahead, the current price of soybeans near $11.35 represents an over-valued market, due for a price decline. 

There are lots of questions the market will need to answer in the weeks ahead. Will the final yield estimate in January be lower than 53 bushels an acre, the most recent USDA estimate? Many believe so. If so, U.S. ending stocks could be close to 200 million bushels, a tight figure which would suggest bean prices are too low. Another question is whether China will live up to what is believed to be an aggressive buying agreement between now and the end of the new year. Perhaps most important is the weather in the Southern Hemisphere. What will it look like between now and February? Weather developments, if less than conducive for crop production, would likely send prices higher, perhaps dramatically, especially if China is buying.

What can you do about it?

Create a balanced marketing approach. Trying to outguess the variables mentioned above (fundamental, technical, or political) is a task that seems overwhelming. Create a balance between cash sales and ownership while defending the value of stored soybeans to shift risk and take advantage of the current price level. A somewhat simple approach is to go into the new year with cash sales that are important to you for cash flow and the elimination of downside risk for those bushels. On bushels you intend to continue storing, purchase puts to establish a price floor while leaving upside price potential in place. This approach will put a floor on 100% of your production through cash sales and purchased puts. On sold bushels, purchase call options. Purchased calls provide the owner with the right (not obligation) to own futures. Purchased puts and calls are fixed to the risk of premium, commission and fees paid. With these positions in place, you are both 100% long through stored soybeans and long calls or 100% short. Rather than trying to navigate weather, politics, and technicals, you are now left to manage the value of options. Your advisor can help you with that. 

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 over 36 years at Total Farm Marketing and 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 markets and marketing tools, a strong listener, and communicates with intent and clarity to ensure clients are comfortable with their 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