What are the latest predictions for soybean markets? It’s going to be a hot topic for farmers next year, and definitely something many will be following even more than usual. Four recent articles we’ve found are pretty much in agreement- the outlook isn’t good. Production is increasing around the world, and then there’s that pesky trade war going on. How can you make the most of it? Below is expert marketing advice from Farm Futures, Successful Farming and AgWeb.
Even the Good Scenarios are Pretty Bad
Bryce Knorr of Farm Futures says the soybean outlook is anybody’s guess. In normal times, record yield this season would mean lower prices. But this isn’t a normal year. Factor in the trade war with China and soybeans are a tossup.
Even is the trade war ends relatively soon, it’s not at all likely that the soybean market will recover quickly. Realistically, by the time the tariffs ended, Brazil would be harvesting their record crop. Around 40% of the US selling season’s potential would be lost. This is the “good” option.
More likely is the “bad” option. The trade war continues, because it’s a proxy for the US desire to limit China’s economic and military ambitions. They’re a rival, not an ally. The expectation that Trump could get any real change out of this is a stretch.
Even if the trade war had never started, US exports wouldn’t have shown much growth. The rest of the world is increasing production, and China’s economic growth is slowing. According to Knorr:
This is a warning to those who think sharply lower U.S. soybean acreage in 2019 is a panacea. It might produce good selling rallies. But historically the U.S. share of world exports depends on its share of world exportable supplies – production plus leftover inventories not used domestically. Smaller crops bring less export potential unless the competition suffers too.
It’s not too tragic yet. Many growers forward priced soybeans and will do well. That, paired with Market Facilitation Program payments and completed sales mean that many growers will still profit this year.
The market didn’t get much of a rally on USDA’s forecast for lower yields, and futures face a turning point in November. Ability to take out October highs could set the market on a bullish path. But conditions are favorable in South America so far. Without a threat or a surge in Chinese demand, the market historically has moved lower into February, and neither factor looks likely this year.
Prices could rebound during the spring or summer on acreage or weather concerns. But growers holding soybeans unpriced should recognize the risks if the market never mounts much of a rally.
Bryan Doherty of Successful Farming says that soybean growers should look to spring. There’s a short window of uncertainty in April, May and June, when prices typically move higher. This is an opportunity that growers can take to forward contract and sell grain stores. But how do you know you’re making the best marketing decision you can?
Doherty suggests purchasing call options at a low price when volatility and uncertainty are low- in the late fall or early winter. The calls provide reownership, so when prices go higher, there is no reason not to make sales.
Set your target prices, and allow the market to dictate sales.
In addition, you purchase put options to protect the price of grain you intend to sell after harvest. This should keep you well-balanced, in that you have protected yourself against a price decline on all of your expected production and can still take advantage of price increases.
If prices move higher, the call options you purchased will retain ownership for bushels that are forward sold. Your unpriced grain (with puts purchased) has now appreciated in value. If prices decline, your put options have increased in value. In this strategy, you are long 100% of expected production.
With calls and puts in place and target prices set, let your strategy unfold and, in essence, take care of itself. With tight margins, it is more and more challenging to make ends meet if short-lived opportunities are missed.
Sara Schafer has a few tips for marketing soybeans in this bearish market. She spoke with Stephen Nicholson, a Rabobank senior analyst for grains and oilseeds. Nicholson says that first, soybean growers need to look into the costs of storage. Commercial storage will be expensive this year, but on-farm storage has costs too. If you take the money now by selling the grain, what will you get versus storage?
Nicholson also says to be realistic about prices. He doesn’t predict prices to move higher.
“Every day you hold onto that crop, there will be more grain coming to market and you perpetuate the probability of beans being very cheap.”
Even if the trade war ends soon, it’s likely that the US will continue to struggle with depressed prices and lost markets. Try and keep an eye on what Ag economists are saying, and do your best to figure out how much low commodity prices will impact your cash flow and balance sheet. Be open to new commodities and new markets.
7 Tips for Successful Grain Marketing in 2019
AgWeb shared an article written by Jennifer Shike of Farm Journal. In it, she provides a tip sheet from the American Banking Association to help farmers make a solid marketing plans for 2019. They encourage farmers to know their breakeven costs, create a solid plan of action, and take the emotions out of decision making. Here’s the list:
1. Know your breakeven costs.
Factor in all of your costs including input, debt service and family living expenses. ABA suggests finding ballpark figures from university agricultural extension services or an advisory firm. Use an excel spreadsheet to add up and track your costs.
2. When there’s an opportunity to profit, act on it.
Understanding your production costs gives you a better idea of when you can sell for a profit. Avoid one of the biggest mistakes producers make – inaction. Don’t put off making decisions because you think prices are will go up or you’re going to miss a rally, ABA says.
3. Set a goal and stick to it.
Create a plan that will help you stay on track. With so much unpredictability in agriculture, no one can know what’s going to happen, but having an organized plan helps.
4. Take the emotions out of it.
Talk to your banker for recommendations of people or companies who can help you make decisions and understand your options.
5. Keep things simple.
Sticking to your marketing plan can help you stay in business. When you make a decision, accept it and move on. Don’t beat yourself up afterward if the market moves one way or another, ABA advises.
6. Avoid spot markets.
Keep track of your local basis and understand the benefits of forward pricing.
7. Understand the tools available.
Ask questions about your options and find the best solution for you and your operation.
Wondering how this market uncertainty will playing out with planting decisions for 2019? Read Ag Nook’s related article titled, “Early USDA Predictions Show Row Crop Shift“.