Content ID

256053

Bean Futures Leaning on Currency Support, Supply Abundance Concerns

With a stronger U.S. dollar, there has been a general feeling that the postharvest soybean rally could quickly vanish. Yet, exports have remained solid and at a consistent pace, suggesting the USDA may have to increase its yearly expectation for U.S. soybean exports. Potential weather concerns in South America and strong demand (due to improving world economies) are factors that may (and have) provided support to prices. Hold on, though, because there may be more to the story.
 
The Brazilian real has also rallied and at a stronger pace than the dollar. When looking at how much ground the real has gained against the U.S. dollar, it may help to explain why exports for U.S. soybeans have been aggressive and more consistent than most expected. Compared with a year ago, the real has gained approximately 25% against the dollar. This alone can help explain why U.S. exports have remained strong.
 
Let’s look at supply concerns. When considering beans below $9 a year ago, soybean futures trading over $10.25 for much of the last three months makes sense. Yet, as the South American crop continues to mature, the concern of supply risk grows. This means, despite U.S. soybeans being competitively priced on the world market, end-user buying could slow or shift. Importing countries may switch from front loading (buying in advance) to a just-in-time inventory approach, as they see less urgency to buy ahead due to increasing availability. In other words, now is not the time to get comfortable with the ability of soybean prices to hold up.
 
In the two paragraphs above, we discussed currency and weather. We have not discussed a host of other variables, such as expected planted acres in the U.S. and long-term demand. Our point is that trying to outguess market movement is difficult and challenging. From a marketing perspective, soybeans are currently priced (old and new crop) where it is easy to make both a bullish and bearish argument that prices could move at least $1.50 in either direction. Consider a balanced approach. Reward rallies with cash sales, and cover these with call options. If storing or not wanting to forward-sell new crop, consider puts or sell stops under futures to shift downside risk potential. Have an in-depth conversation with your adviser to position yourself to help meet the needs of your operation. Make sure you have a clear understanding of the risk and potential reward, regardless of which way the market moves.
 
If you have questions or comments, or you would like help in creating a balanced strategy for your operation, contact Bryan at Top Farmer Intelligence (800-TOP-FARM ext. 129).
 
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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