USDA Report Confirms Big World Soybean Supplies

What’s Happened….

The much-anticipated September 12 USDA Supply and Demand report contained few surprises. It did confirm big inventories in the soybean complex with projected U.S. ending stocks at 550 million bushels, compared to last month’s number of 560 million. Expected yield at 53.2 bushels an acre was also unchanged, and still record large. World projected carryout remains at a record high level 134.3 mmt (million metric tons). The world stocks–to–use percentage (stocks divided by usage) at 33.2% remains record large, suggesting there is plenty of expected inventory available to buyers for the months ahead.

Why this is Important….

Slowing demand (especially out of China) and big crops both in the Northern and Southern Hemispheres are responsible for increasing world inventories. Bioenergy demand has been somewhat disappointing and a rebound in world vegetable oil production has also been a competitor. Nonetheless, the world has a ravenous appetite for soybeans. Despite a high projected carryout, a recent near–term price recovery of 75 cents is impressive, especially as harvest gets underway. Some expect a slight reduction in yield next month due to dry weather. Yet, the price recovery may only be temporary. Expect an increase in farmer selling. Creating a balanced approach to marketing unpriced bushels should now be a priority.

What can you do about it?

There are several approaches you might take. One is to step up cash sales. You should have a pretty good idea what your production numbers may be, so rewarding the rally makes sense. If wanting to retain ownership, consider call options or bull call spreads with plenty of time. Initiate positions that can get beyond the harvest season and even beyond the growing season for the Southern Hemisphere crop. July calls or bull call spreads make sense from a time perspective. 

If you intend to store, consider purchasing put options. As a reminder, a put is a fixed-risk instrument that provides a price flooring mechanism. If you’re willing to take additional risk to potentially reduce the cost of your put options, consider selling out-of-the-money call options. This is called a fence strategy. In essence, you are fencing in a range of prices. You establish a price floor and a price ceiling. Note this position has unlimited risk as the short call option can gain value if prices rally. 

Perhaps the most important thing you can do is to have a conversation with your advisor to help guide you in the right direction, using the right tools for your operation and risk tolerance. Ask questions and only implement strategy after you are confident you understand all potential outcomes, regardless of which way the market may move.

Find out what works for you….
Work with a professional to find the strategy or strategies that are 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 and less emotionally charged responses to market moves, which are always dynamic.

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.

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 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.

Author

Bryan Doherty