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Soybean Outlook - Market has more questions than answers

Stocks could be lower than previous estimates, but still big

Sometimes what we don’t know is more important than what we do know. For soybeans this year, next to nothing is really certain. That could stimulate rallies to profitable levels, but it doesn’t guarantee them. And passing up chances to sell, as hard as it will be to pull the trigger, could lead to pain down the road.

USDA put out another bullish report for soybeans July 11. Once again, the numbers were mostly guesses. I’ve got my own guesses and they get to the same conclusion as USDA, eventually: Ending stocks a year from down could be down to 800 million bushels or less.

That’s an improvement, yes. Before popping any corks remember it’s still nearly double where we were just a year ago. And there’s no guarantee carryout will even come in that low when all is said and done.

The first of many unknowns is how many beans will be around come Sept.1, when the 2019 marketing year begins. USDA says it will still be more than 1 billion. It could be less depending on whether China takes delivery of the 210 million bushels of outstanding sales it has on the books. While negotiators from the U.S. and China quibbled this week about when new purchases would begin, all those existing deals made when talks restarted this spring need to get moved.

There’s also a chance USDA isn’t factoring in enough “residual usage” – it’s way of admitting the 2018 crop likely was smaller than previously reported. Crush is slowing, but may still wind up better than forecast too.

Those unknowns pale besides the really big question mark: the size of the 2019 crop. USDA took the fairly unusual step of lowering its yield estimate by a bushel per acre July 11. Coupled with lower acreage reported June 28 and the result was a crop down 700 million bushels from the official 2018 estimate. USDA reports results of an updated acreage survey Aug. 12, when prevent plant data will also come out.

August weather should still make yields this year, and there’s plenty of uncertainty there. Current forecasts call for normal temperatures and normal to above normal precipitation, which could limit losses. But the shift reported July 11 to a neutral pattern on the ENSO cycle – El Nino –increases potential for yield variance. Under El Nino conditions that last into fall, yields tend to be above average.

Toss in more uncertainty about 2019 crop demand due to the trade war and it’s a whole lot of possibilities. Some of them could produce rallies, which is why the selling range in my supply and demand table this week for new crop is $10.33 to $10.73. But it wouldn’t take much bad news to knock a dollar or more off that forecast.

November futures are trying to prove a short-term breakout. But it’s going to take some dramatic weather to jump-start the kind of rally farmers need for a profit. Pencil out now what expenses you’re willing to cover based on the risk you can take, given a conservative yield estimate. Then fasten your safety belts.

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Forecasts for 2019 crop carryout are falling, but supplies could still be up significantly from Sept. 1, 2018. Both supply and demand have plenty of question marks.

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Crop ratings slid since the first weekly conditions came out, and are trailing last year’s pace on both models we use. But they still suggest at least yields of 49.5 bushels per acre, 1 bpa more than USDA forecast July 11.

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The shift to a neutral reading on the El Nino cycle this summer increases potential variance in soybean yields – for better, or worse.

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A record book of outstanding sales means shippers must work overtime to reach USDA’s goal for the 2018 marketing year, and 210 million bushels could get caught up in the trade war.

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Even if a trade deal gets done, demand from China could be weak due to effects of the Afrian Swine Fever outbreak. Chinese imports during the first 10 months of the marketing year are down 16.5%.

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Carryout for 2019 soybeans looks to be down compared to 2018, but could still run a burdensome levels historically.

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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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