Commentary
Late-summer heat and dryness have apparently taken a toll on the soybean crop in some areas of the US. That is likely supporting prices as well as early planting delays in Brazil’s main growing areas in my opinion. Monsoon rains are expected to enter in Brazil in October while crop ratings for the soybean crop remain elevated despite 3 straight weeks of warm and dry in the Midwest. The combines are rolling, and harvest is advancing. However, there is some noise entering the market that China is expecting potentially heightened trade tensions, which could bode ill for the 2025 export and price outlook. Could the Chinese be gearing up for a retaliatory push back vs US Ag just like they did during the onset of the 2018 trade war? Brazil continues to expand its reach into China regarding soybean exports. Of the record 12.14 MMT of soybeans China imported in August, 10.24 MMT (84.3%) originated from Brazil. U.S. soybeans accounted for 202,383 MT (1.7%) of China’s August imports. Through the first eight months of this year, China imported 53.8 MMT of soybeans from Brazil (up 217% from the same period last year) and 12.8 MMT from the U.S. (down 73%). Clearly, they are building their reserves in my view as a new round of tariffs are set to expand next week. Back in May President Biden announced plans to increase tariffs on a range of Chinese imports, including EVs, citing the need to protect US workers from China’s unfair trade practices. The Office of the US Trade Representative announced on Friday that the proposed plans have largely been adopted following a review of public comments, and the measures will take effect on September 27. The rate for electric vehicles will quadruple from 25 to 100 percent. Tariffs on lithium-ion EV batteries will rise from 7.5 to 25 percent, and on solar cells from 25 to 50 percent. US Trade Representative Katherine Tai said in a statement, “Today’s finalized tariff increases will target the harmful policies and practices of the People’s Republic of China that continue to impact American workers and businesses.” If the US does not have enough issues with exporting grain (river levels cutting barge drafts again) the Longshoremen union is threatening a strike over automation and pay. 45,000 dockworkers are planning a strike on the East and Gulf Coasts on October 1st. Longer term bean hedge idea for producers below.
Trade Ideas
Futures-N/A
Options-Buy the May 25 soybean 10.00 put vs selling the July 25 12.00 call. Cost to entry even money minus trade costs and fees
Risk/Reward
Futures-N/A
Options-The reasoning for a long-term producer hedge is this. Ending stocks currently sit a 550-million-bushel carry. Even if we have a 50 to 100 million cut in production or a significant increase in demand, we still have the excesses to absorb a few bullish inputs. Brazil and Argentina just need average crops to dominate the export market. Anything around a 450 to 500 million is massive historically with stocks to usage elevated. The risk on this trade is unlimited and is presented to soybean producers only as a hedge against their production that may go in the bin.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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