TOP FARMER INTELLIGENCE – Weekly Perspective by Bryan Doherty

10/18/19

POTENTIAL SUPPLY CHANGES FOR SOYBEANS

Throughout the growing season, weather is the most dominant factor affecting soybean yield and, consequently, price. This year has been challenging for many producers, as a cool and wet May led to a late start to planting season. Yield projections have varied widely. Most would suggest conditions were never good enough to expect record production. The most recent USDA yield estimate is 46.9 bushels an acre and compared to last year’s 50.6. The report was viewed as supportive. Carryout dropped from 640 million bushels in September to 460 million on the October report for the projected 2019/20 crop season. This compares to the 2018/19 crop projected carryout of 913 million.

Soybean prices have found support from various factors. The September 30 Quarterly Grain Stocks report came in 69 million bushels less than expected. Most of this attributed to a reduction in yield from the 2018 crop. The October Supply and Demand report dropped yield by one bushel to 46.9. Weather has been less than ideal the past several weeks for crop maturity. Recent heavy snows and wind in the northwest growing regions could add to potential crop losses. Some private forecasters are suggesting a national yield near 45. With harvested acres at 75.6 million, this could mean a potential reduction in carryout of nearly 140 million bushels, dropping carryout to near 320 million.

A 320 million projected carryout would likely send soybean prices to between $10.50 and $11.00. Upward price momentum, short covering, and any uncertainties that might develop in the southern hemisphere could add upward momentum, suggesting the friendliest picture for soybeans in over five years. There are a lot of what-ifs here, however, we want to remind readers just how fast fundamentals can change in the world of soybeans. In recent years, big yields, trade relations and African swine fever have kept a lid on prices. Thinking forward, what if trade relations are more normalized, the hog herd in China rapidly re-builds and weather has a negative impact to supply? Conceivably, over the course of a year, the world may go from burdensome supplies to rationing supply.

As a producer, however, you still need to market your soybeans, preferably on a price rally. So how do you accomplish that when the price outlook is turning friendly? Making sales too soon could be costly. Yet, you know the pain of not making sales, particularly if prices fall apart. Purchase call options when beans are sold to retain ownership. Or, if you are willing to take an ownership position before making a sale, purchase the calls beforehand and set target prices to sell cash beans at higher levels. If cash sales are triggered, you already have ownership in place. Whatever your action, be ready. The supply picture for soybeans is in flux. Predetermined strategy helps to elevate the stress of making quick emotional decisions, and accomplishes the task of planning for all market scenarios.

If you have questions or comments, contract Top Farmer at 1-800-TOP-FARMER extension 129. Ask for Bryan Doherty.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.