Grain Spreads: Volatile August Coming?

Sean Lusk General Commentary


Will the front loaded purchases that China has bought from Brazil so far in 2020 create any tightening on global balance sheets in the next 6 months? The World’s largest bean grower has shipped 2.22 billion bushels of soybeans in the first half of 2020, with 1.59 billion or 72% of those shipments destined for China. Brazil still has supplies left, but stocks are tight enough that domestic processors are bidding up basis to keep many of those soybeans at home to fill domestic demand. It may explain why Brazil bought 3 million metric tons of soybeans from Paraguay a few weeks ago. It gives thoughts to a tightening situation come late this year. Mother Nature will dictate that as August weather is the key yield development time for soybeans here at home.

Beans come in as of the last condition report at 71 percent good to excellent.Trendline Yield is 49.8, but with good weather, the yield can easily bump over 51 to potentially 52 bushels per acre. The result of that would have ending stocks surging to 525 million if not 650 million bushels pending on final numbers. A more than ample carry where the average price would come in at 8.30/8.50 rather than the 880/9.00 range in my opinion. Two questions arise for price discovery for the next three months. Will yield potential grow or shrink during the critical month of August? Second will China hoard supplies beyond what it needs due to its fears of a future shutdown in trade, due to either coronavirus or trade relations?

One spread Im watching is the Nov 20/21 soybean futures spread. It lost 4 cents today and has traded down to key support at 7 cents Nov 20 under. It needs to hold here in my view or it could have another leg lower. Ive seen this spread push down to a 40 to 50 cent carry in years past. Good weather and weak demand and it could push significantly lower again in my opinion.

Nov20/21 Beans

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