2023 soybean sales

By Jon Scheve, Superior Feed Ingredients, LLC 

The soybean market has lost nearly $3 per bushel in value from early November. Most of this steep decline is due to South America’s crop getting bigger and worldwide demand not increasing at the same speed. There are some in the trade expecting bean prices to rebound.

Several South American crop watchers are reporting that yields there are shrinking due to dry weather during the growing season. However, these groups may not be taking into consideration that overall planted acres may have increased significantly compared to last year, which could have offset much of the yield losses. 

Also, some market participants think the current reported USDA’s crop size of South America is higher than it should be. They point to CONAB, Brazil’s equivalent to the USDA, lowering their yield estimates the past few months to a total production under 150 Million Metric Tons (MMT). The USDA has not made the same adjustments as they are 156 MMT; therefore, these market participants say it is only a matter of time before the USDA changes their yield estimate lower, which should lead to a market rebound.

However, CONAB’s track record for estimating crop production size in Brazil has seen that in 7 of the last 9 years their February to their final report was adjusted higher with an average increase of 5 MMT. The range in those years was somewhere between 2 and 12 MMT. In 2021 they showed almost no change, while only 2016 saw a further decrease in their estimate from this point forward.

Another issue is that the value of soybeans shipped from Brazil are currently at a substantially discounted price compared to U.S. beans. Brazil’s bean prices are so low, several shipments have even been purchased for delivery to the U.S. East Coast over the next few months.

2023 soybean sales

As I have mentioned before, I sold 25% of my 2023 bean crop for $14.04 at the end of 2022. I then bought put options to protect my downside during the growing season. After rolling the original puts I purchased down to lower values in September, I was left with a cost of only 8 cents on that 75% of my bean crop after those puts expired in late October with no value.

After the puts expired, futures went to $14 again and it looked like they could go even higher, but then the market turned lower as this chart shows.

Nearly one year after selling my first 25% of the crop, I sold my second 25% of the crop at $13.11 at the end of December.

I considered selling all of my remaining beans at that point as well. However, based on market conditions at that time, there were several reasons that futures seemed to have a better chance to go higher than lower in early 2024. 

  1. In late December, Mato Grosso was having the driest 30-day window during the reproduction stage of development for their soybeans in over 40 years. This seemed to indicate that the crop was going to get smaller, and prices would rally.
  2. In 9 of the previous 10 years, futures values eventually traded higher in January or February compared to where they were at end of December. The only year it did not trade higher was in early 2020 as Covid began to spread across the globe and demand fell.
  3. In December the USDA indicated a tight carryout for U.S. production. This included an export pace estimated to be nearly as low as it was during the trade war several years earlier. This seemed to suggest the market was going to need to ration demand further with higher values.
  4. The January to March futures spread was narrowing from a big carry to a small carry, suggesting there was underlying demand for soybeans.
  5. Farmers seemed to not be selling beans under $14 futures, which suggested prices could push back higher in early January.
  6. Since I had 100% of my 2023 corn crop fully protected near $5.90, and now 50% of my 2023 beans priced at an average of $13.57, I felt comfortable waiting to see where the market went in early 2024.

Unfortunately, none of the above helped turn the market around. Despite below average rainfall, Brazil seems to have managed planting more acres to increase production to satisfy market needs.

Therefore, on Feb. 14, I set futures prices on my final 50% of productions at $11.86. After rolling my November and January sales to the March contract, and accounting for the put option costs, I have an average sale price of $12.71 on the March futures contract.

Looking back, I am glad I sold the first 50% when I did, and like many other farmers, I wish I would have sold the remaining 50% sooner. However, the risk of going against historical trends and the poor weather conditions being reported in South America made it seem like it would be a mistake at that time to sell. 

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

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3 comments

  1. I hope that 8 cent cost per bushel will help offset some of the lost revenue from selling early.

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