Soybean Futures $2 Above Model Based On Expected USDA’s Feb WASDE.

Feb 7, 11:16 am | AgResource Plus | Share this:

Bottom Line:   At yesterday’s close, July soybean futures was nearly $9.50.  A model of soybean futures price, based off the trade’s average expectation for the February WASDE’s stocks/use projection, suggests that futures prices should be $2 lower.  After tomorrow’s reports are fully digested by the market, further changes in prices will probably be triggered by “new information” regarding expected supply or demand.  Potential factors causing a change in price are : (1) developments that will raise/lower expectations for US exports (progress or the lack of in US-China trade talks) and (2) changes in the prospects for the S. American crops.

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On average, the trade expects that the USDA’s February WASDE soybean S&D will peg ending stocks at 926 Mil Bu, down nearly 30 Mil Bu from the December WASDE.   Using the trade’s average ending stocks estimate implies a ratio of ending stocks-to-use of  22.6%.  That is down from the December WASDE when the ratio of stock/use was projected to be 23.3%.  However, it is the largest that USDA has projected ending stocks /use in over 30 years – – for the February WASDE (see chart below).

 

 

The chart below shows plots July corn futures closing price ONE WEEK AFTER the February WASDE and the stocks/use ratio projected by the February WASDE.  At yesterday’s close, July ’19 corn futures were trading at $9.4925.  A single variable regression model, based on the February WASDE stocks/use projection, predicts a soybean price of $7.50.  This suggests that there is should be downward pressure on soybean prices next week.

However, this year, stocks fundamentals appear to have little to no effect on the market.  Soybean futures prices seem to be elevated on the expectation that China will eventually purchase huge quantities of US soybeans that will cause the projected record stocks to evaporate.  Other potential factors that might alter the trajectory of soybean prices are : (1) developments that will raise/lower expectations for US exports to non-Chinese destinations and (2) changes in the prospects for the S. American crops.