Technically Speaking

With USDA's August yield estimate of 53.6 bushels per acre (bpa) and 80.1 million harvested acres, production figured to be 4.293 billion bushels (bb) with a 290 million bushels (mb) ending stocks level. With ongoing dryness in portions of the southern and Eastern Soybean Belt, there has been discussion that yield could fall to the 52-bpa mark or even lower without early September rains. Let's assume two additional scenarios of a 1-bpa to 2-bpa drop in yield. Each 1-bpa drop would mean roughly 80 mb less production. A decline of 2 bpa would result in 160 mb fewer soybeans at a 51.6 bpa yield.

That sure sounds bullish, but when one looks at the other -- possibly more important -- factor for the soy market it would be the ongoing tariff battle with China. China has not really budged and has been loading up on Brazilian beans in anticipation of a tough trade negotiation with the U.S. Now, China has even bought some of their November and even December needs and have avoided buying even one bushel of new-crop U.S. soybeans. That has led some analysts, including a closely followed farm advisory service, to predict the U.S. may have already lost from 300 mb to 350 mb of China soy business. If that indeed turns out to be accurate, then the loss in soy yield becomes much less meaningful. Add to that the prospect for Brazilian farmer's intentions to once again plant more area to soybeans. Early estimates for the 2025-26 Brazilian soy crop are a record large 178 million metric tons (mmt) to 180 mmt.

Adding insult to injury, a look at the November bean chart shows it is very close to penetrating all of the key moving averages with momentum rolling over. While all of this is pessimistic as a whole, an unexpected trade deal agreement with China would surely negate much of negative impact of the speculation above. Let's hope for such a surprise.

Unlike the soybean market, the corn market has been blessed with solid export demand along with strong ethanol demand and a cattle market that still sits in a raging bull market. Also unlike soybeans is the huge increase in corn acres and lofty and record-large yield estimates we have seen not only from USDA but from a host of private analysts and farm advisory groups. The latest came Wednesday which pegged the corn yield at a huge 187.5 bpa. The resulting 16.6-bb-plus crop would loosen the corn balance sheet substantially. Add to that the fact that Brazil harvested a record crop and Argentina plans to ramp up corn area planted in the coming year. Argentina has been blessed with plentiful rain ahead of the seeding campaign. There is also plentiful competition ahead, with Argentine corn now the world's cheapest FOB value for the fall, and Ukraine back in the fold as a corn export competitor.

On the technical side, December corn appears to be overbought and likely due for a downward correction. One would have to guess that the path of least resistance ahead of the bulk of harvest is likely to be down for corn.

Dana Mantini can be reached at Dana.Mantini@DTN.com

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