Soybean Rally is Limited by South American Supply/Planting Intentions

At last, the much anticipated late season weather worry rally has finally arrived. This is a role reversal from last year.

Last year, the 100 year heat and drought was a first half story that crushed the corn yield potential during pollination but saved the bean crop with a second half reprieve. This year the hot dry weather is occurring at a critical time for soybean pod setting while corn pollination is largely over.

While corn can still lose bushels beyond successful pollination such yield loss is not enough to be a game changer. My forecast for corn has always been near 150 bushel per acre and I still feel when it is all said and done that yield will be more accurate than the current consensus near 160. That does not make for a bullish corn market at all. It just means less bearish. A 150 corn yield means U.S. ending stocks at 1.3 billion bushels, which is plenty of corn and does not justify prices any higher than $5.50 at the most with $4 per bushel very likely later in the season. But with beans rallying, record short specs in corn are covering as would be expected. But do not let a short covering rally in corn sway you into thinking the corn fundamentals are bullish. They are not. This bean induced corn rally is an opportunity to sell on a scale up to $5.50.

Soybeans have a larger problem but I doubt the current heat wave and dry period will produce a yield lower than last year’s 39.6 bushel per acre. Assuming that this is where yields wind up, we have no further to look than last year’s post 100-year drought soybean panic to see that $14 to $15 beans existed throughout the fall and winter. So unless one is willing to project a crop worse than last year, it is hard to see prices moving higher than $15. Why would prices be higher than this range this year if that was where they traded last year?

Additionally, this year South America has much larger supplies of corn and beans compared to last year and the Brazilian real has crashed close to 20%. This means that $15 beans are equivalent to last year’s record high U.S. prices near $18. I highly doubt soybeans will be able to make all-time highs in South America.

Also, this is occurring at a time when soybean planted acres are being finalized and with prices this high, South America will plant every inch of the Amazon. What the bulls are not telling you is that this warming trend change is likely going to remain throughout the entire month of September thereby largely taking an early frost risk off the table which would have far more dire consequences to yields should it occur.

I said in my last report that if we were lucky enough to get a late season weather worry rally in beans, one should run to start selling. That time is now. I see no more than $1per bushel up from here and $3 per bushel down from here depending in how things play out. Only an early frost can blow the top off the bean market beyond $15 in my view.

This weather rally likely has at most another two weeks to go and it will be over with harvest right around the corner. I would be scale up selling with $15 as a target to complete the sales you want to accomplish. Most other agricultural market prices are producing flat or negative returns to farmers. You have the opportunity to make huge returns with current bean and corn prices. You should take it. If you look a gift horse in the mouth for too long you are likely to get bitten instead.

This is the first major sell recommendation I have made in beans since the one I made the week of the panic top last September.

If one wants to be bullish grains, the Wheat/Rice markets offer superior future bullish fundamentals.



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