Weekly Soybean Review

June 16th, 2014

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Category: Oilseeds

(Farm Futures) – The headline on last week’s Soybean Review claimed that old crop beans still matter. However, after weak technical performance last week, they seem to matter less, at least on price charts.

With just two weeks until July goes into delivery the volatile old crop contract could still have plenty of spark left in it. But both the July/November spread and the nearby itself are targeting further losses, despite still very tight fundamentals, at least on paper.

Monday’s crush report from member of the National Oilseed Processors Association will be the next nugget of data showing how tight supplies really are. If trade estimates are correct the year-to-date total should remain 3% above last year, less than the .6% bump forecast by USDA June 11, which was a modest increase from the previous month.

Export sales are also continuing to be put on the books, with year-to-date total commitments 56 million above USDA’s forecast for the entire marketing year. That’s about the same number of sales on average that are rolled to new crop on Sept. 1, but it implies no new bookings for the rest of the summer.

The import picture remains just as murky, due to the delay in reporting. The only bearish part of this environment is the cash market, where the buying actually gets done, which has been relatively week despite the big break on the board.

If old crop can’t provide the support, new crop prices must rest on their laurels, and so far they’re holding on. The May/June correction so far has stopped at 38.2% of the 2014 rally, keeping November futures in its uptrending channel for the year, albeit barely last week. Initial crop ratings suggest very good yields, with a 3.75 billion bushel crop not out of the question. If actual production is anywhere close to that level prices don’t deserve to be in double digits, so growers must carefully assess their risk.

We previously recommended getting protection on 45% of expected production, moving to $12 on a November close below $12. Those who don’t have much protection on or need more can look to options. It’s possible to lock in around a buck of downside by selling a November $13 to help pay bear put spread: long the $12 put/short the $11 put. Shorting the January $13 call on stored inventory would lessen the need for shorting the $11 put, providing more downside coverage.

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