NASS offered initial US soy crop ratings (66%) on Monday, with the reading coming in well under last year’s record at 74%. The initial measurement was slightly above the long term average, but despite this rating, all is not perfect across the Midwest and Plains.
Note in the chart that 78% of the MN soybean crop was at GD/EX, 1% over last year, and well above average. But, moving moving south and east across the Midwest, soy ratings steadily declined.
IL and IA were also well above their long term averages, while just 51% of the IN crop was GD/EX, and OH was also just below it’s long term average of 57%. Crops in the Dakotas were also down sharply from a year ago at 56% in ND and just 43% in SD. Given the additional soy planted acres in both states, the ongoing drought has an important impact on the US balance sheet. Its not the start that any farmer desired!
The purpose of today’s wire is to set the stage for the soy market going forward amid all of the market’s focus being on US yield/supply. The demand side of the ledger can only be determined once the 2017 US soy crop is known.
For the past 3 years, US soybean yields have set fresh record highs. Never has a US crop set a record yields in 4 consecutive years! If such a yield were to occur this year, it would surely confirm a change in seed genetics and agronomics.
The table offers US soybean yield at trend, and 5 & and 10% above and below estimates.
The market (price) will adjust demand once the US crop size can be determined.
Soybeans are a crop of July and August with June weather normally not important, unless a lasting drought is in existence that would harm soybean plant growth. June is the month that soybean plants engage in vegetative growth before reproduction.
Mother Nature is highly uncertain, but the market appears satisfied with its current bland outlook. The soybean option volatility index (VIX) calculated by the CBOE declined today to 19.5% versus 31.4% last year, and the 5 year average of 25%. Option volatility is (unusually) heading lower at a seasonal time when the weather/yield outlooks are far from certain.
The chart below reflects that fund’s net short soybean position which is the 2nd largest on record. The last several times that funds were short more than 50,000 contracts, the market rallied more than $3 in the spring of ’16 and over $1 in the summer of ’15.
It would be surprising that some sort of rally effort did not occur in 2017! ARC notes that more than 25 Mil US soybean acres were rated as short/very short on soil moisture – the largest since the dire 2012 Midwest drought.
ARC is not exceptionally bullish soy. But, research reflects that in the short term, market risks are skewed more to the upside than downside. With soil moisture so short, it would be an odd summer where soybeans did not try to rally at least $1-1.50/Bu into August.