How Farmers Should Respond to Soybean Rally, According to Market Analyst

What Happened

Soybean futures rallied more than $1 since mid-October, accelerating upward this past week as the framework for a trade deal with China was outlined. In addition, President Trump’s trip to other Asian countries also netted positive trade results and expectations. Though the Commitment of Traders report is not available due to the government shutdown, private estimates suggest managed money has been actively exiting short positions, entering new longs, or both. In essence, the perception of improved trade, technical buying, and speculation that final harvest results will indicate a smaller yield than the current USDA estimate of 53.5 bushels per acre — are all converging to support prices.

Why This Is Important

Historically, soybean prices trading just above $11 are considered somewhat low. Yet, this past week’s rally not only pumped enthusiasm into the marketplace, it also changed price momentum from sideways to higher. This provided farmers with a new opportunity to make sales at the best prices in over a year. At a minimum, there is new hope. A trade deal couldn’t have come at a better time, when many farmers are cash-strapped. A strong domestic crush pace, exports, and lower yield, with potential crop uncertainty for South America in the year ahead, could create even more rally potential. Money flow is often reflective of a potential shift in a market’s fundamentals.  

Before one gets too bullish, recognize that it usually takes two or three items to sustain a price rally. It is OK to be bullish about prices; however, the effort should now move to strategy.

What Can You Do?

Soybean producers should not let the current opportunity disappear. You don’t want to make the mistake of not selling. You would feel terrible if you watched the market go up and then down. Yet, you don’t want to sell too much too soon. What if the rally is just starting? Create a balance using several marketing tools. The key is to manage the volatility and control what you can. This means strategizing to manage risk and stay an owner. Doing nothing may pay big dividends or cause a huge financial setback. Money can quickly move in and out of a market.

Find What Works for You

Work with a professional to find the strategy or strategies 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.