Soybean Market Bearish, and That’s No Bull
By Geoff Geddes
When it comes to high-risk activities, predicting the market is up there with skydiving and telling your spouse how they really look in that new outfit. Yet despite the uncertainty, it’s possible to get a glimpse of the 2017 soybean market, the prospects for growers and some tips on how to navigate the trading waters without taking a dive.
“The recent USDA report showed a much higher expectation for the size of the U.S. soybean crop than was anticipated, which puts a bearish slant on the market,” said Jonathon Driedger, senior market analyst for FarmLink Marketing Solutions in Winnipeg.
Will the price be right?
With supply being the critical piece of the puzzle, the U.S. crop size will be a key driver for prices, setting the stage for the bulk of the marketing year.
“It appears that while yields will be down from the huge numbers posted in 2016, we’ll still have a pretty big American crop barring really poor weather,” said Driedger.
“Fortunately, demand should also be healthy. From the Canadian farmer’s perspective, that may mean a similar year to 2016 where we have large supply and large demand.”
It all amounts to what Driedger calls an “ebb and flow” situation, where there are too many soybeans for the price to really take off, but enough demand to give prices some support if they’re pushed too low.
Will the middle ground be a grind?
With all those highs and lows, where do they leave the man or woman in the middle?
“Each farmer must understand their own circumstances and ‘break-evens’. We forward sold some soybeans for our clients for this harvest when values rallied a bit, so hopefully many producers have those sales in place.”
Going forward, there are some interesting factors to monitor that will impact market performance. Will the U.S. crop be as large as the USDA predicts given the widespread debate around their number? Could weather imperfections shave some bushels from the yields? How will the South American crops compare to their record performance in 2016?
Through it all, patience and timing will be critical for producers.
“Given the ebb and flow we anticipate, it’s wise to make some incremental sales when prices pop higher and avoid panicking when they hit a trough.”
Another aspect to watch is the situation in China.
“From an export perspective, the world is massively reliant on China for soybeans,” said Driedger.
“They take about two-thirds of world soybean exports, and demand there has been growing consistently, but if that volume is ever threatened it would have a major impact on the soybean market.”
Will the futures be friendly?
If producers really want something to chew on in assessing the market, it helps to crunch the numbers.
“Futures prices in Chicago have been holding up quite well all year at $9-10, and when you throw in the weaker Canadian dollar, it adds up to good prices overall,” said David Derwin, commodity portfolio manager for PI Financial.
Then there are the local cash bids to consider.
“It’s very important to see what the local elevator will give you, compare that to the futures and factor in the Canadian dollar to determine if the local price is a good one,” said Derwin.
“The nice thing about the soybean market compared to many pulse crops is that it has very liquid futures and options that trade on the Chicago Mercantile Exchange. If we’re seeing high prices, it makes sense to use hedging tools like options and futures to protect your revenue and manage your risk.”
While there are no guarantees in the market, taking some expert advice and applying it to your situation can help mitigate the risk.