Soybeans - Status Quo
Written for Sevita by Bailey Elchinger, Risk Management Consultant and Regional Director, FCM Division of StoneX Financial Inc.
The Status
In the November commentary, we discussed the bean market having found its comfort zone. The market seemed to be comfortable with the projected carryout and had found prices that neither incentivized nor discouraged demand. As we entered the month of December the markets also appeared to be content with the status quo. We had the USDA December supply/demand report, which is commonly uneventful, and this year was no different. We didn’t expect to see any supply-side changes to the bean balance sheet and any potential changes would come from the demand-side of the ledger. Despite strong bean exports sales and shipments, the USDA also did not make any changes to the demand-side either.
During the month of November, the chatter in the bean market was mainly surrounding U.S. President-Elect Donald Trump’s trade policies and possible tariffs. Large tariffs were announced for Canada, Mexico, and China – as Trump attempts to force border control, drug, and other trade issues. These fears did lead to some uncertainty for the soybean market but ultimately failed to drive the market in a meaningful direction. The attention quickly shifted to the President–Elect’s cabinet and other leadership picks for his Presidency. Would these new directors and leaders favor agriculture, biofuels, or trade? One key issue that the bean market faces are that existing tax credits for biofuel blending and creation that are set to expire at the end of the year. There were mixed signals from the current administration and the incoming administration regarding the longevity of these tax credits. Without assurance of the tax credits, it is feared that investors and other interested parties will slow down on their expansion plans and thus potentially slow bean demand.
The quo.
The fears mentioned above all put a ‘ceiling’ on the bean market as the ‘bulls’ don’t see a need to rally and ration demand at this point in time. Meanwhile, the $9.75 level has served as solid support on the SF25 chart but is being tested as a write these comments. Farmers are unwilling sellers below that level which has put a ‘floor’ under the market for the time being. With a solid support level below the market and what feels like a cap above the market it appears the bean market has found a range that it likes to trade in. The market feels comfortable with the status quo.
As you can see there are plenty of reasons that the bean market is comfortable with the status quo, but what could make it uncomfortable? We will not get the next round of fundamental data from the USDA until the January 10th crop report. Between now and mid-January, we would likely need to see a major geopolitical headline to cause concern for the grain markets in general. A supply concern in South America could also give us reason to move higher, but today the weather and potential in the Southern Hemisphere still looks optimal.
Despite the bean market continuing to be comfortable with the status quo it is important that producers don’t also get comfortable with the status quo in their marketing plan. Be prepared if the status quo in the bean market becomes challenged. Take the offensive side for your new crop marketing plan and don’t be satisfied with the status quo.
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