Soybeans – Trick or Treat?
Written for Sevita by Bailey Elchinger, Risk Management Consultant and Regional Director, FCM Division of StoneX Financial Inc.
The Trick
Starting out the month of October there seemed to be plenty of ‘tricks’ handed to the soybean market. Soybean harvest across the U.S. had already started and was progressing at a rapid pace. It is anticipated that the U.S. is also harvesting a record soybean crop. It is hard to rally a market when there is a natural seller driving across the elevator scales every 60 seconds. A large crop and a natural seller brought the bean market under significant pressure through the first half of the month, with the SX24 contract losing nearly a dollar in that time span. Soybean exports also struggled through the first part of October. The U.S. current sales pace is running behind the pace needed to meet the USDA total expectations for the year. Specifically, the U.S. bean sales to China are behind the typical pace we would see for this point in the marketing year, in-fact our sales to China are only ahead of the 2018 and 2019 trade war crop years.
Soybean exports also struggled through the first part of October. The U.S. current sales pace is running behind the pace needed to meet the USDA total expectations for the year. Specifically, the U.S. bean sales to China are behind the typical pace we would see for this point in the marketing year, in-fact our sales to China are only ahead of the 2018 and 2019 trade war crop years.
The Treat
Later in the month of October saw a brief but significant rally in the bean market. Export values out of the Gulf began to firm as a small handful of exporting companies seemed to be short on their needed coverage and were having to pay higher values to source the needed beans. This firming of bids didn’t have immediate effects on the futures market, but they did have drastic effects on spreads. Following that strength rumors of additional Chinese soybean purchases helped give the market strength. The SX24 contract subsequently rallied over 40 cents in four trading sessions. This got the contract back above the 50-day moving average on a chart, but we were unable to maintain the rally.
Another Trick
Following the short-lived rally and failing to maintain the rally, the SX24 contract began losing ground again, quickly. Many in the trade are watching the U.S. Presidential election, which will happen in early November, very closely. Analysts are studying the candidate’s positions on foreign trade and international relations and attempting to anticipate what each could mean for the direction of the grain futures markets. Thus, when one candidate appears to be in the ‘lead’ the market goes in one direction and when the other takes the lead in the polls the market goes the other direction. This has contributed to the volatility in the latter half of October. While the outcome of the election will clearly have impacts on long term policy and relationships, I don’t believe the impacts will be seen immediately.
Don't let yourself be fooled by the tricks and miss out on marketing opportunities. Just because the crop is out of the field and in the bin doesn't mean the principles of a marketing plan don't apply – rallies should continue to be sold whenever the market decides to treat us to them.
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