TFM Perspective 7-2-20


Soybean Report Friendly

The much-anticipated Quarterly Stocks and Acreage report released on June 30 contained surprises that may have changed the trajectory of prices in the near term as well as potentially the long run. The market responded positively to a drop in corn acres. Perhaps the biggest surprise was a lack of increase in soybean acres. A reduction in row crop acres among corn, soybeans, and wheat by nearly 4.5 million may be due to Prevent Plant, small grains in leu of traditional row crops, or other crops such as hay or vegetables. Nonetheless, projected big carryout numbers for corn may still loom over the corn market, despite a drop of five million acres from the March estimate. The soybean market could potentially be viewed as explosive for prices.

Soybean acres at 83.8 million was below the average estimate of 84.76 and outside the range of estimates. This potentially sets the stage for ending stocks to be under 300 million bushels. Last month’s USDA numbers indicated projected carryout of 395 million for the 2021 crop year. Yet we believe the market was trading a figure closer to 450 million. If carryout is near 350 million or less and if China were to buy more aggressively (as expected), prices could continue upward.  Currently, a gap on the November soybean futures chart at $9.03 is a target for prices to reach. Should less-than-ideal weather the next 4 to 8 weeks diminish yield prospects, carryout could drop to well under 300 million. To use simple math, assume harvested acres at 80 million. Drop yield one bushel an acre with no change to demand, and consequently, carryout is 315 million. Drop two bushels an acre, and carryout is under 250 million.

Bull markets can create a stressful marketing environment. If prices rally and then drop off, you feel you should have sold more, and it might be too late.  If you’re making sales into a rally and prices continue higher, you also feel as though you’re making mistakes. We encourage a balanced approach. Use tools to position yourself almost regardless of which way prices move. World supplies are adequate. If the U.S. produces a big crop, sub $8.00 on futures is likely. A weather market could drive prices much further and faster than expected. If you’re making cash sales as prices move higher, you will feel you are doing the right thing until a point is reached and you become scared.  Human nature kicks in, and when you should be selling more (and you know it), you are afraid to because your other sales now look like a mistake. To get around this dilemma, purchase call options to either cover cash sales as you make them, or pre-buy them so when the market hits targeted sell points, you already have re-ownership. By having coverage, this makes you mostly whole with the market. Should prices continue upward, it also gives you peace of mind knowing you did the right thing making cash sales, and can still benefit from higher prices. You can’t control the weather, nor can you control what others do (such as China buying or not buying). You can help control how market volatility affects you with tools available to you.  Put on your thinking hat and sharpen your pencil. Concentrate your efforts on strategy and a balanced marketing approach.

If you have questions or comments, contact Bryan Doherty at one 800 top farm extension 444.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.


Bryan Doherty

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