Head to Head: Spring Trends to Follow

March 29, 2017 02:37 AM

Q: With the initial acreage discussion nearly behind us, the attention of the markets will shift to weather. In addition, there seems to be a battle between investment money flowing into commodities versus large Southern Hemisphere crops. Can you discuss these factors and any surprises producers should watch for as they make spring pricing decisions?


Seasonal Soybean Rally Likely, But Watch  Acreage Closely

For the past few months, soybean fundamental factors have leaned friendly. We are now approaching a price and fundamental crossroad. The threat of abundant supply globally, if the U.S. plants more acres and has a perfect growing season, would potentially push prices lower. That would especially be true on the heels of a massive South American crop. 

Yet thanks to China, soybean demand is so strong that global days of soybean supplies are actually trending lower. If there is a perceived U.S. weather issue this summer, the market will react with substantially higher prices. 

The funds continue to maintain a long soybean position. A look back reveals their long and short positions in the market seem to work in tandem with seasonal price patterns. New-crop soybean futures seasonally rally into early summer. If there is no summer weather issue in sight, the funds liquidate those long positions. 

Be aggressive at locking in new-crop sales on spring and early summer rallies. Think defensively about unpriced bushels by using an appropriate hedge. Black swans to monitor are President Donald Trump, trade and China.

Contact Naomi at nblohm@stewart-peterson.com


Fierce Export Battle Poses Price Risk For Soybeans

A little more visibility on U.S. acreage this year will come with USDA’s Planting Intentions report. Yet there are still some wild cards. For example, it would only take a 3-bu. to 4-bu. drop in the U.S. average soybean yield to offset 4 million to 5 million additional planted acres. 

The acres aren’t settled yet, either. Prevented plantings swung from 262,000 acres amid dry conditions in 2012 to 3.6 million acres amid wet conditions in 2013. A dry April and May would add more acres to corn and soybeans. 

Keep in mind double-crop soybean acreage dropped to a six-year low this past year despite an attempt to buy acres in June. We attribute that to a smaller wheat base. There is less winter wheat this year, so double-crop soybean acres will likely be down again. South American export competition will be fierce. 

Price risk is probably larger in soybeans than corn, as soybean prices, until recently, ran 
$1.20 per bushel above last year, and corn ran 5¢ under. We like selling November calls for $11 and December calls for between $4.20 and $4.40 as come-and-get-me hedges, but they won’t protect much downside.

Contact Alan at alanb@bruglermktg.com

Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades.



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