Heading into early summer, soybean futures had fallen a long way from their extreme high in 2022.
Taking a look at the 35-year chart on page 11, notice the deep decline from the peak of above US$17.80/bu. Check out the lower end of the 2008 to 2025 trading range — the zone of support at US$8 to $8.50/bu.
At the time of writing on July 4, the November future is around US$10.50/bu. The question: Will the market drop into that low-level support zone ($8.50 or below) this year?
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It’s possible. In August of last year, the market bottomed at $9.36 1/2. If this year’s supply exceeds that of last year, the market could slip below last year’s low mark — and maybe lower.
Acreage down but good yields could compensate
This year’s U.S. soybean acreage is less than last year. The USDA recently estimated seeded area at 83.38 million acres, compared with last year’s 87.05 million.
High yields could offset the impact of this smaller area. In June, the U.S. government projected an average yield of 52.5 bu/acre, up from last year’s yield of 50.7 bu. This was based on a multi-decade uptrend in average yields.
If the weather is ideal and the average yield sneaks above 52.5 to near 53 bu/acre, production would match or slightly exceed last year’s crop, potentially pressuring prices below last year’s low.
Meanwhile, there are widespread doubts about exports. If ongoing trade issues with China slow U.S. exports the next several months, this could add to the weakness.
Point is, there is downside risk through August and into the U.S. harvest time.
Bear in mind that, if this bearish scenario plays out, there will be a bright silver lining to the cloud. Lower prices would put the market into a foundation-building phase for an eventual major bullish upswing.
What’s the upside potential this year?
This year’s smaller acreage puts the onus on yields, if last year’s supply is to be maintained. The most critical yield-determining month for U.S. soybeans is August.
Weather-related nervousness often creeps into the marketplace in late June. Historically, soybean futures have made key turns in late June/early July, based on weather forecasts. Some years, futures sank on forecasts of good weather. Other years, bullish action was triggered.
This year could see a key upturn. On June 27, the November future dipped briefly below US$10.15/bu, only to reverse to the upside. The first three trading days of July saw a pop up to $10.55.
It wouldn’t take much for more weather-related nervousness to push the Nov future up to around US$11. That’s an initial target to watch for. (If weather forecasts in early July are bullish, this may have happened by the time you’re reading this.)
Given the smaller acreage, speculative buying could push prices even higher. US$12 could be hit. However, getting above that level would likely require actual yield reductions, not just concerns. Knock the average yield for this crop down below about 49 bu/acre and the story changes!
An old maxim may apply here. If a weather problem develops, the time to sell can be precisely when the weather news seems most bullish. Any time a market fails to rally on really bullish weather, it’s a good idea to make at least a small sale.
Word of warning: If the November future falls below its late-June low, the bullish bets are off and the bearish scenario gains the upper hand.
Regardless of the weather and price action this summer, if you want to be strongly longer-term bullish, the ideal set-up would be to see a bearish medium-term outcome, with prices at $8.50 or less later this year. Low prices like that would discourage production and build demand for a bull run.
How about canola?
Given its close relationship with soybeans, canola will respond to the upside if beans rally on weather woes. Canola has already seen a good rally, with the November future enjoying several trading days in June and early July above CAD$725/tonne after falling below $600 in March. A soybean weather scare could put an $800 upside target in play.
On the downside, canola will be negatively affected if soybeans slump toward the big-picture support zone. This could knock canola down to its 2024 low of around $540. Growers don’t want to consider such a bleak scenario, but it’s conceivable.
Canola growers should remain alert for selling opportunities presented by weather concerns affecting the soybean market in July and August. Same time, if beans slip below the late-July low, be aware of the bearish risk for canola heading into harvest.
In summary
1. Soybean futures came to an inflection point in early July. Poor weather will spark bullish action; good weather will do the opposite.
2. Many geopolitical factors will vie for attention this summer. Tariffs, trade deals, biodiesel policy affecting oilseeds… all will merit discussion. Starting in late December, focus will shift to the South American soybean crop. These issues will shape the oilseed-market landscape, but the most important factor is U.S. Midwest weather.
3. Weather hype sometimes gives farmers exceptional pre-harvest selling opportunities. It doesn’t happen every year, but when it does, the failure of a market to respond to what seems like extremely bullish weather can offer a sell-signal.
4. Short-term factors come and go. Of greater significance are the swings from plentiful supply (low prices) to short supply (high prices). These swings are easily seen on the long-term chart. If prices slip to the low ebbs described in this column, the markets will discourage production and build demand, slowly opening the door for the next cyclic boom.
Footnote: See my commentary on wheat in early June.
John DePutter was a commodity market advisor for over 40 years. He is a general partner principal at Ag Capital Canada and watches the markets from London, Ontario.
