Todd's Take

On Nov. 9, 2023, USDA estimated Brazil's soybean production would total 163.0 million metric tons (mmt) or 5.99 billion bushels (bb) in the new 2023-24 season and Brazil's Conab had a similar estimate of 162.4 mmt. Nothing exudes confidence like agreement among official crop assessors, but there were problems under the surface. Brazil's young soybean crops were encountering long stretches of hot and dry weather and pictures of stressed crops were popping up on social media.

The U.S. had just harvested its smallest crop in four years and USDA estimated ending soybean stocks at a tight 245 million bushels (mb) in the November World Agricultural Supply and Demand Estimates (WASDE) report. Brazil's weather problems were potentially bullish for soybean prices and in much of November, the November 2024 soybean contract traded between roughly $12.75 and $13.17 a bushel, stopping just short of the August high of $13.20.

Brazil received beneficial rains around Thanksgiving and again on the New Year weekend. Prices sagged below the $12.75 low in December and broke to another low on the first trading day of January. From there, it was all downhill until November soybeans hit a low of $11.22 3/4 on Feb. 26.

After soybean prices fell more than $1.20 a bushel within the first two months of 2024, you might think bullish hopes for soybean prices would have ended but that doesn't seem to be the case.

On April 11, USDA issued a 155.0 mmt (5.70 bb) production estimate for Brazil and there is a bit of a controversy because the estimate from Brazil's crop agency, Conab, is down to 146.5 mmt (5.38 bb). I personally lean toward Conab's estimate because I find Conab to be more forthcoming with specific observations, but my bias is irrelevant and so are the two estimates that don't agree.

The more interesting factor in the soybean market these days is that the price difference between FOB prices in Paranagua and New Orleans has narrowed dramatically. In late January, Brazilian soybean prices that were as much as $1.75 a bushel cheaper than U.S. prices are now less than 40 cents apart.

We also see the price of July soybeans on China's Dalian exchange is up nearly 10% from its January low, ending Friday morning at the U.S. equivalent of $14.10 a bushel.

The most likely explanation for the narrower price gap with Brazil is a combination of a smaller-than-expected Brazilian crop plus a surge of buying interest from China in March. The sudden change of heart in those recent prices is potentially bullish for U.S. soybean prices, but so far, U.S. November soybeans have held below resistance near $12.08.

In the best of times, we never know for sure how much crop is harvested in any country. Crop estimates are simply temporary placeholders until the real crops arrive. With 80% of Brazil's harvest now complete, supplies are already moving toward their destinations and having an impact on prices. In my fallible view, prices are the primary indicators in the market worth watching, not endless debates about who has the right production estimate. That was certainly true in early January, and I would say it's still true today.

We are about to start a new soybean planting season in the U.S. and there is much to learn. It won't be long before we start getting weekly crop progress reports for soybeans, more planting estimates and eventually, another batch of new crop estimates. Understanding the amount of uncertainty that arrives with each new season, I suggest we take these new estimates with a grain of salt and keep the attention on prices.

After working with DTN's Six Factor Market Strategies for 11 years, I can tell you the price trend has been the most helpful factor through all kinds of markets. My biggest regrets were usually the result of favoring other factors over the trend. Playing the crop estimate game can be an entertaining hobby and short-term price moves can be deceptive. However, for all their faults, prices remain the best clues to what's happening in a market. USDA and Conab may never agree on the size of Brazil's 2024 soybean crop, but that debate belongs in the history books. Supplies are already moving forward.

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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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