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USDA's Large Soybean Stocks Number Has Long Tail

Dryness issues in Argentina continue to support the market.

The soybean market ended the week on a negative note, giving back yesterday’s gain.

For the week, the beans managed to claw out a 4¼ cent gain. Weakness can be attributed to the fact that the trade is coming to the realization that the USDA current ending stocks estimate of 530 million bushels is nothing but bearish.

Allendale warns there are more upward revisions coming to exports, as sales continue to run way below what is needed to hit the USDA export goal even after the adjustment lower.

Dryness issues in Argentina continue to support the market, as there is no doubt that the dryness they are experiencing is shrinking their crop. The Buenos Aires Grains Exchange lowered its soybean production estimate from 51 million tonnes to 50, today.

The USDA lowered its crop numbers to 54 mmt yesterday. We believe that this is a short-term story, unless the crop gets lowered to the 40 mmt area as they have carry-in stocks from last year’s crop at a record 36.2 mmt, which will help offset this year’s losses. (U.S. old crop stocks were 8.2 mmt last year). Brazil crop is also expected to get bigger, as well, which will keep the world stocks relatively unchanged.

This week’s report did not change our viewpoint that the market will work lower into the spring due to the burdensome U.S. and world carryouts as well as the expected increase in U.S. bean acres this spring.

We recommend producers continue to work on selling both new-crop and old-crop soybeans on this move right here and not 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.

With the report out of the way, the trades near-term attention will turn to watching maps and seeing if Argentina receives the rains that are forecast for this weekend.

 

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