After surging soybean prices to start the week, soybeans prices broke on Thursday, falling double digits. As the market turned, the momentum seemed to shift. However, Arlan Suderman of StoneX says volatility is a product of today’s market environment.
“You’re going to hear rumors of China flipping boats to Brazil, etc., and the price incentives certainly are there, but the delay in harvest creates some problems with that,” he says. “It’s very tight on supplies.”
Suderman said he thinks Thursday’s market reversal was created by technical sellers reaching their targets, and, in turn, pulling back out of the market.
“I don’t see this market going away anytime soon,” adds Suderman. “We’re going have tight supplies by buying balance sheet for at least the next year and a half. And so, weather scares will happen along the way. I think this is just part of a volatile market you get when you’re at prices this high.”
Tommy Grisafi of Advance Trading says while there’s nothing typical about the end of 2020 and the start of 2021, he agrees this type of volatility is expected with high prices.
“Over the history of time, great bull markets like a meal-led great demand bull market; they always give you a chance to buy it,” says Grisafi. “There was a point a few months ago where it felt like beans were never going to go down, and they went up at a great run.”
Grisafi said in today’s market environment, it’s key to remember that what’s happening in the futures prices is based on 100% electronic trades.
“There are zero Board of Trade pits with humans in them,” says Grisafi. “The computers have taken over, there’s not a lot of humans trading, clicking the mouse and actually making trades.”
Grisafi says the key thing to watch are the price spreads on the Chicago Board of Trade, as well as your local cash prices.
“Your local cash markets are telling you supplies are incredibly tight in a lot of commodities, including ones we don’t even trade at the Board of Trade,” he says. “Keep an eye on your local cash market and the spreads. And just for the record, I traded some July $21 calls today. So those still have a value of 4 cents. There’s some people who want the right to own them from $21 and above.”
China’s historic buys of U.S. ag goods didn’t seem to help the tight supply situation. According to Suderman, China’s daily purchases added up this week and shattered the weekly export record.
“The timing is certainly curious as the new administration comes in. Combined with reports of 200 million gallons of ethanol being sold to China for delivery in the first half of this year, the timing is interesting,” says Suderman. “China has a history of making big purchases to try to influence politics and does it with presidents of both political parties. The concern for me is China doesn’t always take shipment of those purchases in the year in which it says it will. So, I want to see the shipments.”
While China’s hunger for corn made headlines, Suderman says the steady demand for soybeans is creating a serious supply concern. That’s why there are now fears the U.S. could run out of soybeans.
“I’m really concerned whether the processors are going to have enough soybeans,” says Suderman. “If we look at soybean shipments to date, they exceed the seasonal pace needed to hit USDA target by 388 million bushels, and that gap keeps growing. We have some processors that are looking for summer supply in soybeans and struggling to find it right now. Not saying they can’t, but it is raising concerns.”
“Call your local hog producer,” says Grisafi. “If you’re watching this show, call someone who raises hogs and ask them where they’re getting their meal for June, July, August and September.”
