Soybean

Summary:

Once again soybeans started the day with some optimism and then faded as the day went on. On the daily July beans are still finding support on the highs made in March and working within a consolidation pattern. On the weekly July made a new low on the week while November is still working within last week's trading range.

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Soybean Traders Await New Data Amid Market Shifts

Today’s Commitment of Traders report will capture the latest market moves, shedding light on managed money’s current positioning. Last week's data indicated a notable reduction in short positions, a common trend as summer approaches. By May 7th's close, the July Soybean contract had climbed 83 cents from the previous Tuesday, with funds liquidating over 107,000 contracts—a significant move. However, by the following Tuesday, a 32-cent drop had occurred, setting the stage for today's report.

Weather and Planting Progress

The afternoon GFS model forecasts favorable planting weather for the next three days. Early next week might see some weather systems, but the weekend should bring planting progress. This past week, rainfall varied across the Midwest. Northern and eastern areas received moderate to heavy rain (1-3 inches), while central and western parts saw lighter precipitation (0.5-1 inch). Isolated flooding occurred in some areas, but overall, the rain benefited soil moisture levels despite causing delays.

Historically, mid-May sees a rapid increase in planting percentages. In 2019, progress jumped from 9% to 19%, and in 2023, it surged from 45% to 61%. The five-year average shows a rise from 34% to 49%. This trend suggests a significant advancement in planting progress by May 19, potentially reaching around 47-49%, despite this week's rain delays.

South American Crop Updates

Brazil has experienced above-average rainfall in Rio Grande Do Sul over the past week, yet harvest progress continued. Nationally, Brazil’s soybean harvest advanced from 78% to 85%, with Rio Grande Do Sul at 88%. The full impact of this weather on production is still unknown, but an estimated 3.2 million metric tonnes remain in the field, with potential quality concerns.

In Argentina, the Buenos Aires grains exchange reduced its soybean harvest estimate for 2023/24 to 50.5 million metric tons due to hot and dry weather in March, down from the previous 51 million metric tons. The USDA's estimate stands at 50 million metric tons.

Long-Term Weather Forecasts

The Climate Prediction Center’s updated long-term forecast now delays the expected shift from above-normal precipitation and normal-to-below-normal temperatures to above-normal temperatures and below-normal precipitation by a month. This means above-normal precipitation will persist into June, with the warmer, drier conditions now expected in July and August, affecting the soybean reproductive phase more significantly and potentially resulting in slightly below-trend yields.

Bean Oil and Tariff Concerns

Soybean Oil prices have moved positively over the past two days. Initial concerns arose over the Biden Administration's Section 301 tariffs on Chinese imports, but the market reacted more calmly upon realizing cooking oil was excluded.

Yearly Comparisons and Price Targets

Our similar year studies for July projected a low just under $11.50 and a spring peak near $13.00. May’s high so far is $12.56'4. For the November contract, we anticipated a low around $11.38, with a late February low at $11.22'6 and a spring high projection of $12.38, with May’s high at $12.30'4. We are nearing our price and time targets.

Export Sales and Crush Report

Soybean export sales this week were 265,733 tonnes, aligning with trade expectations. The USDA's goal of 1.7 billion bushels is currently trailing by -3%. To meet this target, sales need a +40% improvement from the average until August. Despite recent improvements, meeting the goal remains challenging.

New crop export sales are minimal but not yet concerning. Historically, early bookings don't strongly correlate with final outcomes. Notably, current bookings are the second lowest in two decades for this time of year.

Wednesday's NOPA soybean crush report for April was unexpectedly low at 166.034 million bushels, missing the trade estimate of 183.072 million bushels. This marks a 4.2% year-over-year decrease, despite a positive trend earlier this year. The USDA’s annual forecast remains at 2.300 billion bushels, necessitating a 1.6% increase for the remainder of the year.

Market Outlook

Soybeans are entering a consolidation phase, reflecting market indecision. Funds are adopting a more neutral stance, with today’s data offering more clarity. Planting delays are expected due to adequate rainfall in key growing states. As we move forward, both private and public meteorologists predict a shift toward warmer, drier conditions, the question is just when.

Our updated balance sheets present yield scenarios deviating from the trend. Starting with a trend yield of 52 bushels per acre and an ending stock of 456 million bushels, a -5% deviation from trend could result in a 345-million-bushel carryout.

Yield changes for soybeans are typically addressed from August to October. Historical data shows a 59.5% probability for higher yields and 40.5% for lower yields. The market may price in a carryout ranging from 456 million to 345 million bushels based on yield expectations. Additionally, acreage adjustments are likely, with recent trends showing changes of 3 plus million acre declines from March to January.

Another consistent pattern is the decline in soybean ending stocks from May to January. Over the past 30 years, 23 years have seen declining ending stocks, often due to underestimated demand. This year’s ending stock may also see revisions higher due to old crop adjustments.

Brazil's pricing advantage over U.S. soybeans remains, though it has narrowed. Currently, Brazil holds a 28-cent advantage one month out and 10-cent advantage three months out. This dynamic will be crucial to watch as we head into late summer, potentially impacting U.S. export demand.

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