Soybean Marketing Moves to Protect Your Bottom Line

What Happened

November soybean futures, currently trading near $10.35, are in a particularly vulnerable spot. They have recently rallied off contract lows near $9.80, and failed to hold above $10.50. The vulnerability comes from a projected carryout at 290 million bushels, as estimated on the Aug. 12 USDA World Agricultural Supply and Demand Estimates (WASDE) report. While down by a modest 20 million bushels from the previous month, many were expecting an increase. If the record yield forecast of 53.6 bushels per acre (bpa) does not materialize, carryout could fall further and put upward pressure on prices. On the flip side, bears will argue that high yield, tariffs, and a lack of trade with China could eventually send prices lower. In the end, both bullish and bearish traders may have merit to their price direction forecasts. Only time will tell.  

Why This Is Important

The bullish argument is related to crop size, which may have recently been affected by disease issues such as sudden death syndrome and white mold. A lack of rain in the eastern Corn Belt during August suggests the next USDA report could peg yield lower. Cold nights may cap soybean yield, as there have been cooler-than-normal nights in late August and early September. Selling soybeans too soon could prove a mistake. If carryout were to drop below 200 million bushels, history would suggest it could lead to $12–13 soybean futures prices. 

The bears argue that yield, despite some challenges, will be record-high, leading to plenty of supply and an increase to carryout. Without a robust export market, it may be just a matter of time before prices decline, perhaps as harvest kicks in. Biofuel offers long-term potential, however, with world supplies currently near record-large and an expectation that Brazil will add acres, the case for lower prices also has merit. Soymeal supplies will also act as an anchor on prices, due to higher crush. Sub-$9.50 and maybe even sub-$9 soybeans may be on the horizon if bulls can’t find bullish news soon.

What Can You Do?

Approach soybean marketing decisions with a balanced approach. This means, regardless of which way prices move, you are prepared. To protect against downside price potential, you could sell cash and retain ownership through paper. By selling cash, you eliminate downside price risk, basis risk, and storage costs, along with the cost of money tied up when beans are in storage. To participate in a price rally, you could own futures, a call option, or a bull call spread. Each strategy has its pros and cons and should be thoroughly discussed with your adviser before implementation. If you intend to store soybeans, consider purchasing a put option. A purchased put is a quantified risk tool that provides a price floor and leaves the soybeans unpriced in order to participate in a price rally. Here too, your adviser can walk you through the most appropriate tool for your risk tolerance and the needs of your operation. 

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.