Soybean’s Ongoing Saga

November 7, 2018 09:50 AM
 
Too much supply and questionable demand will likely subdue prices

Trade uncertainty, record yields and excessive stocks create a bearish forecast and extra risk as you market your soybeans. This is a year you need to develop a proactive marketing strategy that factors in this new soybean market reality.

“First, farmers need to consider their storage costs,” says Stephen Nicholson, Rabobank senior analyst for grains and oilseeds.

Commercial storage costs will likely be expensive this winter. “In the heart of the Corn Belt, space will be at a premium,” he says.

While on-farm storage is cheaper, farmers need to understand that cost. Nicholson suggests weighing your options: If you take that money now by selling grain, what can you get for it versus spending it to store grain?

Realistically assess what soybean price movement you think can occur. “Technically, the markets haven’t shown me any signs they are headed higher, so I expect them to trade in a range for the foreseeable future,” Nicholson says. “Every day you hold onto that crop, there will be more grain coming to market and you perpetuate the probability of beans being very cheap.”

The Chinese tariff on U.S. exports will likely drive soybean acres down in the future, according to Rabobank’s 2018 Baseline Outlook. This should leave acres in the mid-80-million-acre range, which is the lowest since 2014.

Even if soybean acres contract in the coming years, expected lower exports and crush demand will keep soybean stocks building and prices lower.

“In soybeans, volatility is almost nil—that’s not a good place to be,” Nicholson says. “I’m more worried about the next couple years of prices than the last few.”

Profitable price opportunities tend to be short, Nicholson says. “If you see an opportunity, you have to take advantage of it.” 


Develop a Survival Plan

What happens if the trade war drags on another three months—or three years? If soybean prices stay at current levels, how should you adjust your farm’s business and marketing plans?

“Pay attention to what agricultural economists are saying and apply their projections to your own operation,” says Laura Sands, a K•Coe Isom principal. “Even if the trade war ends soon, the U.S. could struggle for years with the fallout of depressed prices and lost markets.”

Craft several “what if” scenarios and run your financials using low commodity prices to understand how different price levels affect your cash flow and balance sheet. Look for alternatives, such as a new commodity to produce or market to access, “anything that can give you an edge,” Sands adds.

Also, develop a marketing plan that can react quickly to changes in grain prices, says Bill Watson, agribusiness division president at UMB Bank. “This means having already set up the appropriate accounts and mechanisms to forward sell or hedge commodities in volumes relevant to anticipated total yields. Be prepared to execute these forward positions systematically as pricing opportunities arise.”

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