As for soybeans, I believe it comes down to "harvested" acres, with Chinese "demand" also an import factor. I am hearing numbers all over the board as far as "yields" are concerned, but I have to believe we end up somewhere between 40.5 and 41.5 when all the cards are counted.
I am just not buying into those extremely low yield estimates that are floating around. I have actually talked to a few producers who tell me they believe they will see better yields this year as compared to last year. Primarily though, most producers still seem to be estimating slightly lower yield numbers. With the recent rains and cooler temps, I myself will continue to err on the side of caution, and believe that we will ultimately see a number at or just slightly lower than the USDA's current yield estimate.
The real question then becomes not so much about "yield," but rather how many acres we will get harvested. If we see a reduction in harvested acres of 200,000 or more, we will need to see some rationing in soybeans as well. A reduction of 100,000 acres, and prices are probably not too far from where they need to be. No reduction in acres, and we will be looking at a setback until more traction or outright soy "demand" from China is penciled in. Right now, that is simply not the case, as China, along with other Asian countries, continues to book South American soy for October and November delivery. As you know, this has traditionally been a time when they start booking U.S. soy for delivery.
I am also starting to worry more about U.S. soybean export demand, especially as I now hear that the Chinese crush margins are running at a negative 15 to 20 cents. If demand continues to falter, you could also see ending stocks numbers jump in a hurry. Regardless, I believe the downside in soy is still no more than $1.00 to $1.50 lower at this point, while your upside could be as much as $2.00 to $2.50, just depending on how aggressive the funds become if and when they really decide to jump on the bandwagon. This essentially gives you a range of $12.50 on the low end to around $15.50 on the high, with the potential for an extended "fund" induced rally to push us beyond the $16.00 level, especially if the "outside" markets can provide us with some sort of a tailwind. If you are looking for the market to "tip" its hand in one direction or the other, keep your eye out for any hints of harvested acres during the coming weeks, or additional setbacks in demand from leading importers/end users.
After talking with a few insiders close to the Brazilian market, I am starting to wonder if the recent stories and press regarding more acres being switched from soy to corn is simply more "hype" than it is "reality." I am not saying that more corn acres won't ultimately be planted in Brazil. I am just letting you know that for most of their producers, soybeans still pencil better, primarily due to the high costs associated with "ammonium nitrate" and their ability to get their hands on large quantities. We just need to be careful buying into the fact that producers in Brazil are going to plant more "full-season" corn at the expense of soybean acres. I am just not seeing or hearing the same thing from producers on the ground.
I certainly believe we will continue to see more "second crop" corn being planted by Brazilian producers. I am just not sure the "full-season" varieties will make as big of a splash as some are anticipating. The southern areas may be more friendly to the concept than other parts of Brazil, but I am still not completely sold on the fact that more "full-season" corn will be planted in lieu of current "full-season" soy. I included a few more details in the story section of the full report. If you aren't signed up, go ahead and click the link below, it only takes a minute.
As for grain and soy markets today, I continue to believe the mood of the market has switched to selling the rallies ahead of the USDA report. You have to believe that if "longs" are looking to square up positions ahead of Monday's report, they will continue using the rallies to unload contracts. With this in mind, I doubt we see any real sustained strength between now and the report.
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