Todd's Take

According to USDA, over three-fourths of U.S. soybeans were harvested through Oct. 22. Late-night work this week probably nudged progress above 80%. But given the new snow in the Dakotas and rain working across the Midwest, it looks like much of the region will be on pause through the weekend.

Drier weather is expected to return as the calendar flips to November and it won't be long before the soybean crop of 2023 is in the bin, elevator, on a truck or train, or floating on a barge down the river.

The question now for many producers is how to market those soybeans. A familiar pattern for many is sell soybeans early and store corn; but as I have been explaining since the fall farm show season, that is probably not a good idea this year. USDA estimates corn's ending stocks-to-use ratio near 15%, the highest in five years and a level that correlates to prices below corn's cost of production. Not only is it more expensive to store corn this year, there is also a good chance prices could trade lower, depending on how South American weather turns out.

With March corn futures near $4.93, check your local prices to see if you have an opportunity to sell the carry. In other words, pencil out the costs of storing your corn for delivery in March and see if that is more profitable than just selling it outright.

For soybeans, USDA is estimating 220 million bushels (mb) of ending supplies in 2023-24. The ending stocks-to-use ratio is near 5%, the tightest inventory in eight years. During the past 25 years, a supply situation that tight would tend to result in prices 30% above the cost of production. In today's market, that translates to $16 a bushel, well above the current national average of $12.23. Before we get too bullish, however, I have to explain at least two big reasons why historical values are not likely to hold up in 2024.

First and more important, today's soybean market is not the same as it has been in the past. Brazil began outproducing the U.S. in 2017 and the gap has only gotten larger since. USDA estimates Brazil produced 5.73 billion bushels (bb) of beans in 2023, 40% more than the 4.104 bb currently estimated for the U.S. In early 2024, USDA expects Brazil to produce nearly 6 bb of soybeans, a tenth record crop since 2010 -- if the weather cooperates. The U.S. has never seen this level of competition for its export sales.

So far in Brazil's new season, roughly one-third of the soybean crop has been planted, a little slower than last year's quick pace. Central and northern Brazil have experienced drier-than-normal conditions and hot weather, but central Brazil is getting more rain lately and is expecting 1 to 2 inches in the week ahead. Southern Brazil has been wetter-than-normal and has more rain in the forecast, a possible problem. See "El Nino's Impact on South American Crops" at https://www.dtnpf.com/… by DTN Ag Meteorologist John Baranick. For marketing decisions, it is too early to be confident about how South American crops will turn out in 2024.

The other reason soybean prices are not likely to get close to $16 in 2024 is the larger market environment. Not only is Brazil in position to keep the world well supplied with soybeans, there is the matter of two wars plus pressure on the Federal Reserve to keep raising interest rates, already at their highest level in 16 years. This is not the kind of atmosphere that encourages traders to invest in markets, in general.

In soybeans, specs reduced their net longs from 193,260 earlier this year to 27,105 as of Oct. 17 and it's not going to be easy to win them back. Adding to concerns, the Wall Street Journal reported earlier this week Iran has been sending weapons to Gaza through several Middle Eastern routes. An escalated conflict is on everyone's list of concerns and remains a bearish threat for ag prices, at least in the near term.

The one bullish factor soybean prices do have going for them is the continued development of renewable diesel production, made from several feedstocks, including soybean oil. The latest findings from the U.S. Energy Department show a record high 1.27 billion pounds of soybean oil were used to make biofuels in July, up 33% from a year ago. This is a market that continues to grow and is providing soybeans with an important source of new demand it did not have before 2021.

Technically speaking, July soybeans in the U.S. are currently trading in a range between their August high of roughly $14.51 and August low of $13. Given the outlook for tight U.S. soybean supplies in 2023-24, prices should stay supported above $13 for the remainder of 2023 and any opportunity near $14 should be considered a good sale.

After champagne corks greet 2024, however, the risk of lower soybean prices increase, depending largely on the conditions of South American crops. It is interesting to note the price of July soybeans in China is 3,968 yuan or $14.75 a bushel, lower than its current spot price of $16.65 and suggests an early confidence in Brazil's ability to grow a record crop. As I see it, there is a limited, bullish window of opportunity for prices, but don't expect tight supplies to be rewarded as well as they have been in the past. The competition is looking stiff in 2024.

Best wishes navigating a difficult marketing environment.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com

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