A rainy forecast in Argentina’s top soybean-producing states is making the market mighty nervous.
How nervous? Prices for May and November soybean futures climbed Tuesday, rising more than 31 cents for May soybeans to close at $9.855 and nearly 29 cents for November beans to close at $9.96, just shy of $10.
What is going on? “There is excess rain in places that don’t need it,” explains Rich Nelson, chief strategist at Allendale, a marketing and research firm in McHenry, lll. Cordoba, Argentina’s top soybean-producing state, is “saturated.” Santa Fe, which is the third-biggest soybean grower in the country, is getting twice the rain they typically receive at this late point in the growing season.
It’s so wet in Argentina that soybeans in the pods are starting to germinate.
“It’s not that we are losing yield,” Nelson says. “It’s that we are losing quality and harvestable product.”
How long will these worries—and this rally—last? It’s really hard to say, according to Nelson.
“You can’t make a good yield loss estimate because this is happening so late in their growing season,” he says. “It’s really a psychology play. We won’t know until the combines are done rolling.”
As the trade waits, anxiously, for that information, soybean prices could continue to rise. “We could see this market test $10,” Nelson says. As of Tuesday afternoon, “there is no sign of a top.”
Even an uptick in supply, thanks to significant U.S. farmer sales, should they happen during this rally, are unlikely to cool this hot soybean market, according to Nelson. “I doubt that farmer selling is going to influence the top,” he says.
Instead, the indicator to watch will be open interest in soybeans, which CME Group reports daily. “So far, it’s been new interest getting in,” Nelson says. “When we will see this market break and call it the top will be when open interest declines … that will signify that old traders, who are holding unprofitable short positions, are starting to exit those positions.”