Consider Strategy Options as Brazil’s Soybean Harvest Nears 

What Happened

Good weather in Brazil over the past 60 days and a forecast for continued conducive crop growing conditions have weakened both soybean and soybean product prices. Expectations for record supplies continue to grow, with the USDA currently estimating the Brazilian soybean crop at 169 million metric tons, up substantially from last year’s 153 million. Year-to-date, U.S. exports are strong, up 10% compared with last year. That is expected to slow, as the overriding big picture perspective of increasing Brazilian production coupled with a weakening Brazilian real is keeping pressure on prices. To make matters potentially worse, for an even more bearish price outlook, some private estimates are now pegging the crop near 172 million metric tons.

Why This Is Important

The market is reflecting confidence in growing supplies through lower prices. From the perspective of an end user, the soybean market is currently offering prices that are on sale. For our definition, we suggest the term “on sale” to imply a product can be bought for less than the cost of production. Harvest will slowly begin to pick up steam in Brazil in the weeks ahead. However, the bulk of risk for Southern Hemisphere crops lies beyond: Weather conditions remain conducive for growth now, yet disruptive changes can happen. 

End users should consider buying aggressively; however, it doesn’t necessarily happen. If prices are slipping, it is human nature to only buy as needed. This is likely the current practice by end users, but there is a point where the risk in waiting outweighs the idea of purchasing soybeans at a lower value. If you are an end user, now is the time to seriously consider scooping up inventory, whether it is soybeans, soy meal, or soy oil. 

On the other hand, U.S. producers who haven’t sold yet will also likely be patient. This could help establish a price floor and create a vacuum of readily available supply, leading to a price rebound. There are no easy answers if you are storing soybeans. From a historical perspective, you may want to trickle out sales on a steady basis into the winter months. Store-and-hold may have its merits, but it also has a lot of risks, including price risk, basis risk, and storage costs.

What Can You Do?

If you are a user of soybeans or protein products, consider stepping up your buying or using call options to offset future purchases. Farmers need to decide whether to sell or hold. If selling, consider long-term re-ownership with call options or bull-call spreads to July, August, or September. If holding, puts can be purchased to establish a price floor. Consider top-side objectives so that, if the market reaches them, you are a seller. The last rally in soybeans this fall had January futures peaking at just over $11. If price orders were in at $11, they were likely filled, and look very good at the time of this writing.

Find What Works for You

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation rather than emotionally charged responses to market moves, which are always dynamic.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: (800) 334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.