How Much has the Soybean Outlook Changed?
Jun 23, 2015
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In the last 2 weeks November soybeans have put in a new contract low at 895 3/4 and then quickly reversed and rallied to new recent highs of 968. This 70 cent rally off of new lows has been triggered by lingering planting delays and declining crop conditions. While soybean prices have certainly reacted to the adverse weather the question is how much has our outlook changed for soybeans longer term?
Planting delays have mounted in the last few weeks. Not that long ago soybean planting progress was ahead of the 5-year average, but now soybeans are only 90% planted compared to 95% on average. While many states are behind the two main trouble states are Missouri (51% planted) and Kansas (72% planted). Heavy rains have kept farmers out of fields and have put stress on crops that have gotten planted.
Crop conditions have also taken a hit on the heavy rains. Soybeans rated in the good to excellent category have dropped 4% since first being reported at 69% g-e as of the week ending June 7th. While a soybean crop rated 65% g-e is still considered a very good crop with a lot of potential the troubling issue is that we have declined every week and the trend seems to be toward poorer conditions.
While planting progress and crop conditions have given traders, especially funds with short positions, cause for concern the longer term outlook may not have changed that much. We think that this timely rally in soybeans may be enough incentive for farmers who were behind crop insurance dates and on the fence of planting or not to go out and plant. We also think that while crop conditions have been coming down and may come down again next week it is much easier for a "too wet" crop to recover than a "too dry" crop. And, while some top end yield potential may be lost soybeans may still have a chance to hit some good numbers.
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Our new crop soybean balance sheet looks quite a bit different than the USDA's at this point. We are not as optimistic on yield, especially after the weather we have had so far. We are also slightly higher on soybean acreage than the USDA but, not sharply higher like some of the other private analysts have suggested. Our beginning stocks (old crop carry over) are also 45 million bushels less than the current USDA estimate. The net result is a production number 128 million bushels lower than the current USDA estimate. But we also differ on the demand side of the equation and this is what brings our balance sheet closer in line with the USDA's current ending stocks forecast.
Soybean demand, for the first time in 5 or so years, is beginning to become a bit of a concern for us. At this point new crop soybean export sales are lagging well behind the last few years. Now, this could be a function of global buyers, such as China, looking for lower prices before becoming more aggressive buyers or this could be a signal that soybean export demand may not be as strong next year as it has been in recent years. If this were the case it would be because after 3 years of strong soybean buying countries, like China, may have replenished their reserve stocks that were depleted by the 2012 drought year. If this is the case, and right now we are only modestly lower than the USDA on export and crush demand, this could add a large amount of bushels back on the USDA balance sheet.
In the short term the weather and production concerns for soybeans may continue to support the market. It may be a good time to wait to make further sales or even lift some existing hedges. However, longer term it is very possible to get a very big soybean carry over if new crop export demand does not pick up soon. This is something to be watched closely in the coming months.
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Please give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit. Follow me on twitter @thetedspread if you like.
July Corn Daily chart:
July Soybeans Daily chart:
July Wheat Daily chart:
Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
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