2013 Outlook: Soybeans Trend Bearish, But Marketing Opportunities Remain

December 2, 2012 11:00 PM
2013 Outlook: Soybeans Trend Bearish, But Marketing Opportunities Remain

Editor's Note: AgWeb.com is taking a look at experts’ projections for a variety of commodities in 2013. See the full list of outlooks.

Soybean prices did an about-face late November, capping a $4 retreat in four months, and they have yet to recover. The marketing year is far from over, though. Profitable sales strategies will again likely present themselves in upcoming weeks and months for savvy marketers who can move quickly. Indeed, on one day alone in recent weeks, prices posted a 24-cent rise on a Chinese export announcement.

No longer, though, are $17-something beans on the table like they were in September, with the new resistance level the $15.75 range, some say. Nor are $17 beans likely to return anytime soon, barring an unforeseen weather calamity in South America, the U.S. or both.

While analysts may disagree on specifics of prices and strategies, forecasters agree that 2013 could well be a year when it might pay to have a big chunk of marketing done early. Moreover, with the possibility that soybeans at the extreme could either be $8 or $22 next fall, 2013 is a year that the use of put and call options offers particular appeal, brokers and economists say.

"Volatility and uncertainty best describe the soybean market," says Dan O’Brien, ag economist at Kansas State University. "Farmers need nerves of steel for marketing in the months ahead, but volatile prices also mean marketing windows, even if brief ones," adds Frayne Olson, ag economist at North Dakota State University.

This winter, the big market driver, even more so given such tight global supplies, will be weather in Brazil and Argentina. If weather looks good as it was in late November, prices could moderate. Just a hint of production problems in South America this winter could send bean prices higher, though, Olson says. That would create marketing opportunities for U.S. producers who haven’t yet sold.

"For sure, the biggest issue to watch will be weather in South America," says O’Brien, though he cautions that's not the only factor. "There also are some real logistical issues in Brazilian port regions," he adds. It’s one thing to grow the beans, quite another to get them into global shipping channels. Keep your eyes peeled on that one, he advises.

Between now and spring, prices are likely to hover somewhere in the $13 to $16 range, O’Brien predicts, admittedly a wide spread. But conditions in both South America and the U.S. could be wild. If no production problems develop, he thinks a window of $14 to $14.50 this winter is in the range of the probable, with a great South American crop "possibly taking us to $13." Come spring, U.S. weather comes into play, and right now a big chunk of the Western and Central Corn Belt is still having a severe drought that could drive soybean markets higher, as well as other crops that influence soybean prices.

In O’Brien’s view, selling a good percentage of both old crop and new crop at $14 to $14.50 is a sensible approach, but for an overall strategy given so many unknowns, the strategy he likes is to divide up sales during the winter and spring. "Don’t try and be a home-run hitter and wait for $18-19 beans," he advises. "Yes, there is the potential for greater gain by holding onto old crop and avoiding new crop sales, but there is also great risk."

Even from present levels that have moved decidedly lower from last fall, "we could see a significant break in prices," says Mark Gold, president and CEO of Top Third Ag Marketing. "My bias is on the short side." Adding to Gold’s bearish sentiment for beans is softer demand with reduced U.S. livestock numbers and the potential for a huge 2013 crop not only in South America but also in the U.S..

For farmers who haven’t yet priced them, Gold advises selling old crop beans but protecting the upside with a call option. On new crop, he recommends that producers sell 20% sold of 2013 guaranteed bushels with a cash forward contract. Gold suggests protecting the remaining unsold bushels with a put option.

One more bearish cloud over beans, he says, is that while most farmers have sold 2012 corn, they have stored beans, and market players know this. Still, back-to-back droughts, while improbable, are not impossible. "I want to keep that possibility open with a call option," Gold adds. That way, if for some reason production is light either in the U.S. or South America, farmers can participate if market moves to the upside.

"Next year, farmers in the U.S. will likely plant the largest soybean crop in history," adds Steven Johnson, farm management specialist at Iowa State University. In the U.S. alone, he predicts that growers will plant 80 million acres of beans, up 3 million from the 77 million they planted this year.

Why the bump in soybean acres? Two reasons: Less corn following corn coupled with Western Corn Belt producers still hit hard by drought who are likely to boost their bean acreage at the expense of corn. Because of those factors he predicts a softer landing for soybean prices, a 65% probability that 2013/14 prices will average $12.50/bu., based on trendline yields.

An important piece to marketing beans today is this, he says: Price seasonality has changed. The highs in soybean prices have shifted the past five years to July and August, after the world has run out of South American crops and is waiting for the U.S. harvest. There is also another seasonal price pattern that could play over the next few months; it is just ahead of the South American harvest, December and January. "I’d be ready to sell (old crop) in the next 60 days. And target some soybean sales early for the new crop about $13/bu. using the November 2013 soybean futures," he adds.

One huge question: Can Brazil and Argentina actually achieve the record yields and production USDA and others are projecting? "It will be difficult for both countries to do that within the same year," states Olson, noting it would be a break from the historic norm. On old crop, resistance of the futures market is in the $15.75 range, what he considers the peak, roughly $1 over where prices were in early December. It will take a change in market fundamentals to get to $15.75, though.

But Olson is more bullish on old crop prices than bearish, with 60/40 odds of prices moving higher rather than moving lower. Why? Odds favor some sort of weather scare between now and spring either in Brazil or Argentina, where not all soybeans were planted by Dec. 1. That said, if prices do shoot up near what he considers their resistance level, they won’t remain there long. So Olson advises producers to jump on them at anything even approaching $15.75.

On the bearish side of the coin, macro factors could enter into the picture and cause prices to move lower. Those include a breakdown in U.S. budget negotiations or failure in Europe to reach an agreement on its debt problems. Olson thinks those scenarios are unlikely but within the realm of possibility.

On new crop, Olson suggests to begin pricing at $13.50, with a price rally of some sort possible in late February or early March. One reason for a late winter or early spring rally will be the acreage battle that will emerge between corn and soybeans, he says. The price battle could be fierce as those two crops duke it out for acres.


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