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Commentary
Hopes and dreams on phone calls that would spur soybean demand deteriorated throughout today’s session in beans where the market retreated back to where it came from, the 50-week moving average at 10.25. Praying and hoping are not trading strategies one should rely on albeit the market does overreact in multiple instances to rumors. But for now, in my view funds will return to sell the rumor and buy the fact in beans. While I don’t believe the national bean yield is at 53.3 BPA, (all-time record yield), given number one bean producer Illinois is at a lackluster 50 percent good to excellent, a whopping 22 percent behind last year’s rating at this time of year, with the poor to very poor rating near 25%. The combines are now starting to roll, so the proof will be in the harvests, not the USDA monthly guesstimate. That said though, if your #1 buyer is absent from the market that accounts for 700 to 800 million bushels, it doesn’t matter how much more or less soybeans you grow, a lack of demand will grind prices lower once the supply side becomes a known in my opinion. I’m not saying the Chinese will not buy U.S. beans down the road. Their state buyers usually prefer US origin to rebuild their reserves as US beans keep better in storage/reserve. But for now, I look for funds to keep pressing beans lower into harvest form one level to the next unless we see China step up and announce a purchase for future shipment or something enters into the market from a supply side standpoint that downgrades this year’s crop. Technical levels if 10.25 doesn’t hold, has trendline support at 10.14 and 10.06. If we close below both levels here, look for beans to potentially push to 994 and 980. To turn friendly, we need to consecutive closes above 10.37 to push the market above 10.61 to 10.64. If one wants to be log soy, get long deep into next year with options. That is where there the question marks live in regard to future production/weather. Remember last year, yield estimates and ending stocks fell aggressively when USDA made adjustments in their December and January monthly updates once the crop was in the bin. I wouldn’t be surprised to see similar downgrades this year due to drought east of the Mississippi.
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Sean Lusk
Vice President Commercial Hedging Division
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