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Home / Futures Blog / Turner’s Take Weekly: First Peek at 2016 Soybeans

Turner’s Take Weekly: First Peek at 2016 Soybeans

June 9, 2015 by Craig Turner

I think Soybeans is going to be one of the most interesting markets to follow and trade in the next 12 to 18 months. While many nations across the globe grow both corn and wheat, a massive majority of all soybeans are grown only in the US, Brazil, and Argentina. The concentration of soybean production to the US and South America makes this market more sensitive to national production and government policy than some of the other grain markets.

I think old crop (2014-2105) soybeans are not much of a story with new crop harvest a few months away AND old crop stocks are more than adequate for current export and crush demand. However, I have been very interested in November 2016 soybeans. Why are we talking about Nov 16 Soybeans??? I work with a lot of farmers and one of my primary tasks at Daniels is to help producer hedge their crops. We do hedging for old crop (July 15 soybeans), new crop (Nov 15 soybeans), and the next year’s new crop (Nov 16 soybeans). I know it is a long way off but understanding these three next crops cycles are going to be very important when taking a long term view on soybeans:

  • US New Crop 2015-16 (Nov 15 Soybeans)
  • South American New Crop 2016 (May 16 Soybeans)
  • US New Crop 2016-17 (Nov 16 Soybeans)

US New Crop 2015-16 Soybeans (Nov 15 futures): With a carry out between 400 and 500 million bushels soybean prices should be sub $9.00 by harvest. If we lose 1 or 2 million acres this season or yield comes down a bushel or two, then $9.00 and $10.00 soybeans are likely, but that remains to be seen and the most likely scenario right now is we have a production year close to the May WASDE estimates. Sub $9.00 soybeans will be below a lot of break evens this year and will put many a farmer in a pinch. For some operations they will have trouble staying in business or getting financing for 2016-17.

2015-2016 Supply & Demand Table (US Soybeans)

TT_SX_SupplyAndDemand_2015

South American New Crop 2016 (May 16 Soybeans): I typically use the May Soybean contract for South American new crop beans. The main harvest mostly gets done in March and April, and those would be the cash months for May futures. Lets say the US has a projected 500mm bushel carryout, global stocks are record large, and US soybeans are priced in the $8.00 to $9.00 area. Does South America reduce acres? Heck no!!! If the US Dollar is still this strong they plant even more acres. Why? Believe it or not, because the US Dollar strengthened so much in the past year, and South American beans are prices in US Dollars, the equivalent local currency those beans are worth are about the same as they were last year. So when the US was getting $13, $14, $15 of soybeans last year, South America is still getting those prices this year because of the US Dollar strength. Brazil and Argentina have every incentive to grow as many Soybean acres as they can. Look for global stocks to expand further and the possibility of the US carryout expanding if the US loses export business to South America.

US New Crop 2016-2017 Soybeans (Nov 16 Futures): So this is where things get very interesting. What happens if this this year’s soybeans come in as expected and South American has another large crop (I know – a lot of BIG ifs but just stay with me for a minute). What happens in next year in the US if soybeans are in the $7 to $9 ranges with respect to:

  • Land Values
  • Rents
  • Fertilizer/Chemical Costs
  • Seed Prices
  • FINANCING FROM THE BANKS!!!!!

After the beating many farms are going to take this year, if soybean prices stay depressed, I find it hard to believe bankers are going to finance operations if input cost stay high and soybean prices stay low. Something has to give. My concern is we get to harvest and we have a big staring contest about what is going to happen. Do land owners come down in with rent prices or do they dig in. What if seed and chemical companies take the same stance? I just don’t see bankers lending out money in that environment. Eventually I think all parties involved find a happy medium, but what if that doesn’t get worked out until late winter or early spring next year? It could mean a lot more unplanted soybean acres than expected. The moral of the story is Soybeans are setting up for a wild ride next year.

In early 2014 we wrote when soybeans were between $13 and $15 that new crop would trade sub $10 by harvest and it did. Early in 2015 when old crop was trying to get to $11 we wrote how new crop should be around $8.50 (which I still believe in). Well now it is June 2015 and I think new crop 2016-2017 could trade anywhere between $7.50 and $13.00. There are a lot of moving parts that need to be sorted out in the next nine months. I think for speculative traders keeping an eye on how the soybean story develops makes a lot of sense. For farmers, I would not start hedging 2016 production yet. While old crop (2014-15) and new crop (2015-16) soybeans are decidedly bearish when it comes to the current fundamentals, there is a lot of uncertainty to come for 2016-17 soybeans and market uncertainty almost always bring significant price action.

Finally, here is my Supply and Demand Table looking into 2016-17 Soybeans. We have scenarios of acres being 85mm like this year, 81mm which was the original projections from old crop (but ended up 84mm), and the 77 million estimates are the acres for soybeans we had in the US just a couple of years ago. The thought there is if soybean prices are below cost of production, we go back to the acres we had in 2009->2013 which is around 77mm. We also then apply those acreage estimates with a trend line like yield of 46 bpa and a lower production 44 bpa. In these scenarios we have 2016-2017 carryout ranging from 117 to 637, or in other words $7.50 soybeans to $13.00 soybeans.

2016-2017 Soybean Supply and Demand Estimates

TT_SX_SupplyAndDemand_new

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Risk Disclosure

STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Filed Under: Turner's Take

About Craig Turner

Craig Turner is a Senior Broker at Daniels Trading, author of Turner’s Take newsletter, and a Contributing Editor for Grain Analyst. Craig is often quoted in the Wall Street Journal, Reuters, Dow Jones Newswire, Corn & Soybean Digest, and also makes appearances on SiriusXM – Rural Radio Channel 80 providing commentary for the Grain and Livestock markets. Craig has also been featured in FutureSource’s Fast Break series, Futures Magazine Online, and INO.com. Mr. Turner has a Bachelors from the Rensselaer Polytechnic Institute (RPI) where he graduated with honors and has worked at the NYSE and Goldman Sachs. While at Goldman, Craig earned his MBA in the NYU Stern executive program. Learn more about Craig Turner.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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