“What goes up…..”

Written for Sevita by Bailey Elchinger, Risk Management Consultant and Regional Director, FCM Division of StoneX Financial Inc.

Back in May we talked about “when the going gets tough, the tough get going”. That proved to be true through the remainder of May as planting pace increased and conditions remained favorable overall. The rally early in the month of May was replaced with a sell-off to end the month and that continued throughout the month of June. The new crop bean contract has lost roughly 60 cents per bushel so far this month. The lack of a bullish story and strong crop prospects both contributed to this decline.

The Going Up...

The soybean market prior to the month of June had factored in planting delays and weather premiums to keep it off its lows. In addition, there still seemed to be demand optimism. There had been weather problems in Brazil and hope that demand would shift from South America to North America. Many in the trade had also been optimistic about Chinese demand. Money had been flowing back into the commodity sector due to reignited inflation fears. All of these allowed the bean market to remain elevated through most of the month of May.

...The Coming Down

Many of the above-mentioned fears began to wane at the end of May. Planting progress improved as did growing conditions in most of the Corn Belt. There was limited Chinese export business in early June but nothing out of the ordinary. The NOPA crush report released in June should have been supportive as it came out much higher than the trade anticipated, but it failed to spark a rally as well. As the old saying goes “If you receive bullish news but can’t go higher, you must go lower”. It appears that is part of the story for the month of June.

The USDA report mid-month decreased old crop crush demand but left new crop demand unchanged. If all 86.5 million acres that the USDA expects to have been planted to soybeans were planted and demand remains as projected, the US will end the year with over a 450-million-bushel carryout. That type of carryout is not historically associated with soybean futures above $12.00 USD. Speaking of history, there are also seasonal tendencies for the bean market to fade lower throughout the summer as it waits for the all-important August pod-filling time. The anticipated seasonal move lower can sometimes become a ‘self-fulfilling prophecy’ where selling begets selling and a large sell-off ensues.

The November bean contract is now trading near contract lows at roughly $11.20 USD. There is still a lot of growing season left to transpire and demand to potentially develop. Is there a chance we will add weather and demand premium back to the market, sure. Will that premium remain in the market for long, who knows.

The old saying goes “what goes down, must go up”. I was always told to rarely use the terms “never” or “must” in the commodity markets. I think this year is no different. There is no guarantee that the market must do anything.

Producers should be ready to manage their risk IF the market does rebound higher. Summer weather rallies can be fleeting and short-lived. It’s important to also remember that what once went down can always go lower again.