Don't get bearish soybeans in March or bullish in May.
The USDA keeps coming out with bearish numbers, the South American crop keeps getting bigger, and prices keep dropping lower and lower.
A disgusted farmer made that comment at an outlook seminar in southern Minnesota last month. I found out that the real source of his frustration was that he had taken his LDP on soybeans last fall, then didn't sell any.
USDA changed its soybean supply-demand outlook last month, adding more supplies into a global market that already has too many beans. Global beginning stocks were increased by 105 million bushels as larger inventories of soybeans were carried over in South America. The trade was looking for global ending stocks to drop to 820-830 million bushels. Instead, ending stocks jumped to 954 million bushels.
USDA also cut its projected U.S. crush and export figures and increased domestic ending stocks. The trade was hoping to see ending stocks drop to 290-300 million bushels, but instead they jumped to 345 million.
Time will tell if these cuts are warranted. At this writing, exports are running about 100 million bushels above last year's pace, so it will take a dramatic slowdown or some cancellations before the USDA slowdown is proven correct.
The Weekly Chicago Board of Trade soybean chart shows that a major four-, 12- and 28-year low came in at $4.01/bu in early July 1999. The low last year came in at $4.30 in early August. The key times that we're projecting a possible change of trend (price low) are the weeks ending March 2 and March 30.
The $4.30 price level is key to watch. If prices can hold above $4.30 as futures build in all of the negative fundamentals, the trend may have changed.
| Jan | Feb | |
|---|---|---|
| Beginning Stocks | 0.876 | 0.942 |
| Production | 6.142 | 6.192 |
| Total Supply | 7.018 | 7.134 |
| Total Use | 6.167 | 6.180 |
| Ending Stocks | 0.852 | 0.954 |
| (figures in billions of bushels) | ||
| Jan | Feb | |
|---|---|---|
| Harvested Acres | 0.0727 | 0.0727 |
| Yield bu/acre | 38.1 | 38.1 |
| Beginning Stocks | 0.290 | 0.290 |
| Production | 2.770 | 2.770 |
| Total Supply | 3.063 | 3.063 |
| Total Use | 2.743 | 2.718 |
| Ending Stocks | 0.320 | 0.345 |
| (most figures in billions of bushels) | ||
Four signals that prices have bottomed:
Watch for a day when the market receives negative news and has a high-volume turnaround — opening lower and then closing higher. It often takes a negative report to end a bear market.
Watch for the first Friday-to-Friday higher close. That type of market action in late March or early April could signal an important low.
Watch for the first week that prices close above the previous week's high. The close on Friday is the most important trade of the week.
Finally, a true confirmation that prices have bottomed will occur when nearby futures close above the previous month's high.
What to do: stay disciplined — The farmers who were the most upset with the sharply lower soybean market this year were those who took LDPs, then didn't follow through and make the sales or establish hedges. Plan ahead. It's almost always bad business to have to sell soybeans in the February-March period. If you can hold on into April-May, odds are good that prices will get better.
Alan Kluis is president of NorthStar Commodity Investment Co. If you have marketing questions or want more information, write: NorthStar, P.O. Box 15086, Minneapolis, MN 55415-0086, call 800-345-7692 or visit www.northstarcommodity.com.