Soybean Prices & Where They Are Headed
Aug 16, 2010
We have received a lot of questions as of late about the direction of the US soybean market. To quickly summarize, traders on the floor are very concerned with China's demand and how long they will remain an aggressive buyer of US soybeans, as well as being nervous about the US weather situation. As we sit right now, assuming the yield comes in at 44bpa where the USDA predicted in last week's Supply Demand Report, ending stocks will increase by 200 million bushels. Traders are worried that for us to hit the record high yields we will need to see some very good weather during the next few weeks. We should know a little more by tomorrow as the crop condition report will be released after today's close. Up until now conditions have remained really close to last year's readings despite talk of too much heat in the south. I know many of you may be anticipating lower yields, but I am not so certain this will happen. As I have mentioned in the past I think beans flourish more than we think in this humid type of South American weather. In addition I believe that we are going to start reaping some of the benefits from the heavy investments made in seed technology and development during these next couple of years. In a nutshell I think anything lost from weather this year will be made up in the form of technological gains in the crop. If my theory proves correct you have to believe bean prices will slide significantly from their current levels. Right now though with too many unknowns and such strong demand the bulls seem to have a stranglehold on the market. The recent hot weather and surge in demand seen on last week's export sales report has kept several of the big sellers out of the market. I have to believe the recent cool down and weekend rains makes the weather less of a concern for now and we may see some sell paper enter back into the game.
SUMMARY: It is our belief that the bean market will need a lower yield in order to rationalize these recent higher prices. Certainly demand has been good, but without a yield below the 44 bpa level I think we are simply too expensive. Even though we have continued growing demand the outlook for expanding US and world ending stocks in the end will be tough to overcome. I think through harvest or at least for the next four to six weeks the upside potential seems more limiting than the fear of a major price set-back. Have your hedges in place. A simple formula you may want to consider would be buying puts and selling calls to curtail the expense.
*Basically you can put in a $10 floor for the next 68 days with $0.50 cents of upside potential for even money (no cost).
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