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This Week, Soybean Contracts Added 38¢

Continued weather concerns can fuel the rally.

We ended the week on a choppy note, as traders spent the day positioning for the upcoming three-day weekend.

The market will be closed Sunday night and Monday, opening back up Monday night in observance of Presidents’ Day.

It was a good week for market bulls, as the front month soybean March contract gained 38½¢ while the March meal contract gained 29½¢.

Continued weather concerns in Argentina were the fuel for the rally. We would anticipate that the market will find support on breaks, until rain falls and the crop stabilizes. There is rain in the forecast for the weekend, for Argentina, and the trade will be watching the maps over the long weekend to see if it falls as anticipated.

As we noted yesterday, we do not believe the production problems in Argentina are as big of a problem that the market is currently hyping. Current thoughts are that their production could be reduced by up to 10 million metric tons (mmt), which is big. Offsetting a good portion of Argentina’s production losses is Brazil. That country’s crop is anticipated to be bigger than last year’s record 114 mmt crop.

Even if you take Brazil’s production increase out of the equation, the world will not be running out of beans any time soon, as Argentina’s old crop carry-in is 36.2 mmt. If they offset their potential 10 mmt production losses with the carry-in, they would drop their ending stocks to roughly 25 mmt. To put this number in perspective, the current U.S. soybean carryout is projected at 530 mb or 13.5 mmt. The odds are the U.S. ending stocks are understated, as U.S. exports continues to falter. The USDA’s goal for the year is for exports to reach 2.100 billion bushels. Year-to-date sales total 1.647 billion bushels. Sales now total 78% of USDA’s whole-year goal. This is far under the 90% five-year average by this week. If this 12% miss is not corrected, we will miss USDA’s newly lowered goal by 252 million bushels.

If these unsold bushels are added onto the current ending stocks estimates, it would push ending stocks to an incredibly bearish 782 million bushels. There is no shortage of beans in the world, unless the U.S. would have major losses in the upcoming year. We recommend producers continue to work on selling both new-crop and old-crop soybeans on this move right here. Don’t risk missing the chance to lock in profits on the hopes of a little higher price later in the spring/summer.  We would recommend buying a straight out call or bull call spread to cover these purchases if you want some weather risk coverage for the spring/summer. Next week’s market direction will be dictated by how much rain falls in Argentina over the weekend.

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