Why I am concerned with longer-term price risk, in the soybean market

Why I am concerned with longer-term price risk, in the soybean market

Soybean traders saw today's delayed USDA crop progress numbers to show the U.S. harvest has moved up to 44%, with most in the trade thinking we would be closer to 45-50% complete.

Traders will then turn their attention to tomorrows monthly USDA report where most sources suspect U.S. production numbers will move higher. The trade is looking for just under a +1 bushel per acre jump in yield, say from 50.6 last month to 51.5 bushels per acre this month.

Interestingly, many seasoned professional traders I speak with regularly are now thinking that might actually be a bit conservative. We also have to remember "harvested acres" are also forecast to move just north of 83.1 million, bringing total production estimates up closer to 4.3 billion bushels and ending stocks, now north of 400 million. Last year in the USDA's October report "harvested acres were moved lower form 83.5 million down to 82.4 million, the "yield" was raised just a touch to 47.2 bushels per acre, total production was lowered to 3.888 billion and ending stocks were forecast at 425 million bushels and average farm prices were projected to range between $8.40 to $9.90 per bushel. Despite what has been massive "demand," it just doesn't feel like all that much has changed.

As a bull, I can argue that export demand is still understated by some 25 million bushels, but the bears argue a reduction could be made in the current domestic crush estimate. Bottom-line, demand has been fantastic but it feels like a record large crop is simply getting larger. As a producer, I remain the most concerned about longer-term price risk in the soybean market and continue to closely monitor the NOV17 contract.

Any significant rally will push me to be a more aggressive seller of 2017 production. Remember, this is still an environment where we want to bank the profits when they are given to us. As a spec, I continue to see this market as somewhat rangebound between $9 and $10, at least until more is known about the weather in South America.

Chinese buyers are back from vacation, but they don't seem to be as aggressive buyers. I suspect if we see a break in price following tomorrows USDA data dump they might try and step back in as aggressive buyers...stay tuned!  

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