Trade uncertainty, ending stocks and other unknowns have upped the ante for marketers. Even with “typical” summer volatility, bears and bulls have potential to encounter major hurdles.
Massive stocks, lower exports and other challenges are sparring with market bulls.
“We’re 20 million metric tons [of soybeans] behind what we normally ship,” says Sterling Smith, Commodities Market Specialist, Bloomberg L.P. That’s 11.22 million tons, or 408 million bu., behind the 2018 pace. Soybean ending stocks are colossal—1.6 billion bu.
“We’re looking at massive soybean carry out,” Smith adds. “We have a range that’s two- to three-times the normal. These soybeans don’t have a home.”
Despite 1.8 billion bu. ending stocks in corn, he sees more potential in corn but says regardless, there are major challenges forthcoming.
- Crops can be planted rapidly, acres are expected to be down and there is reason to expect yields to be diminished.
- The average expected ending stock is at 2.166 billion bu.—not very bullish for the U.S. A tighter global balance sheet is far from certain.
- The dollar will continue to challenge. The Fed appears neutral now but situations with Europe could lend support to the dollar.
“This is the most difficult balance sheet I’ve ever put together,” Smith says. “I’ve never had a balance sheet as unknown as the 2019/20 soybean sheet. I would like to say summer time volatility will be an issue, but that may not amount to much, as the trouble for bulls is manifest.”
Questions about trade, animal feed and other unknowns mean it’s not smooth sailing for bears, either. Even the more conservative traders have hurdles.
- The fund is short—has it taken most of the bearish ‘fuel’ out of the market?
- If a trade deal is reached with China this could open the door for more exports.
- Where will the U.S. land in acres? Will prospective planting report be verified or will weather cut corn acres?
“The elephant in the room for soybeans is China,” Smith explains. “They had typically imported 30 to 35 million tons of soybeans from the U.S. Thus far in 2018/19 marketing year they have actually taken 5.66 million tons.”
At the end of the day, whether bear or bull, it’s a gamble.