Be prepared to take advantage of a possible soybean rally
Aug 04, 2014
Guest blogger Lucas Qualmann, researcher with Stewart-Peterson Inc., offers reasons why you can’t assume a bearish stance on soybean prices.
When prices drop, does it seem like you never have enough of your crop sold or hedged? The decline in soybean prices over the last two months has been significant. When prices rise, do you find you’re positioned to take advantage? An opportunity may be near.
Let’s look at exports and China, by far our biggest buyer. Two weeks ago, year-to-date sales to China for the 2014/15 crop year were off approximately 30 percent. Additionally, total U.S. export commitments for new crop soybean sales were 3%, or 37.8 million bushels behind last year’s pace.
Then during the week of July 21, sales jumped. All totaled, we sold 90 million bushels to export customers. As of the week of July 24, commitments jumped 36.5 million bushels ahead of last year’s pace, or 1.1% ahead of the pace needed to meet the USDA’s current estimate of the 2014/15 crop.
It is clear that buyers see the recent $1.50 drop in prices as an opportunity. If this signals a change in the downward trend, $12 beans may look cheap again.
An exceptionally big week of sales is a common annual occurrence. In September of 2013, we sold 103 million bushels of soybeans. What if we have two or three weeks like that yet this year? We could easily cut into a 415-million-bushel ending carryout by selling 100 million bushels per week for two or three weeks.
We usually sell at least 50% of our exports between mid-July and mid-December, suggesting we can expect solid numbers for the next four months.
Let’s look at yield. The USDA currently projects a 45.2-bushel average yield, and the average estimate from the Reuters survey released on July 25 was 45.5 bushels. The previous record was 44 bushels in 2009.
If the yield this year matches the previous record of 44 bushels, production would be approximately 100 million bushels less than current USDA projections. If exports reach 50 million bushels more than the USDA’s current estimate (a 100 million bushel increase from this year’s USDA estimate), and the yield is equal to 2009, carryout could be as low as 260 million bushels.
Today, the market is trading at 415 million bushels.
What it all means is this: Try not to get caught up in the headlines that have many producers bearish on price. Consistently manage your price risk, and prepare for whatever the market may do.
If prices rise, you want to be in a position to take advantage. No one wants to look back at harvest, when prices could be lower, thinking "woulda, coulda, shoulda."
Scott Stewart is CEO of Stewart-Peterson Inc., a commodity price management firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at email@example.com.
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