The major market influencers in soybeans are the same as they are in corn: Chinese buying, which has the most influence; the weather in South America, especially in Brazil; and harvest progress in the U.S., which has a lesser degree of impact.

“The Chinese buying of U.S. soybeans has been very strong,” said Frayne Olson, grain marketing economist at North Dakota State University. “Actually, when you look at the levels today relative to what they were before the trade war, this is a record pace. Now, the underlying question is how long will this rapid buying pace continue? Will it start to level off and match levels of what we saw previous to the trade war, or are they going to continue at this higher level into the rest of the winter months?

“That’s really the unanswered question. That’s really what the market is watching very, very closely,” he added. “Will this rapid buying, these larger imports by China continue, or will they drop off and flatten out as we get into the January/February time period?”

That, he pointed out, is heavily dependent on the size of the South American, and in particular Brazilian, soybean crop, and when the Brazilian soybeans will be harvested.

This comes back to the tie-in with the weather factor. At this time, Brazil is behind its normal planting pace, not planting as quickly as they normally do because of some very dry conditions, especially in southern Brazil. However, producers are planting in northern Brazil and they’ve been getting some rains, which is going to help planting progress and farmers, just like here in the U.S., can plant very quickly.

“But it’s this planting pace. They’re behind their normal pace, which means the start of their harvest will also be delayed,” Olson said. “Which also means that with their export season, their ability to be able to actually load vessels and ship to China will be delayed. And what the market is looking at is what does that mean for continued soybean sales from the U.S.?”

Right now, it’s too early to tell. But if one of those dynamics, or one of those unique little things going on in 2020 and 2021 that we normally don’t see actually happens, things could change quickly.

With the strong demand, the soybean market has been enjoying a rally in prices which Olson called “pretty amazing.”

“The other thing about soybeans that I’m a little bit cautious of and listening to this little voice in the back of my head, is don’t get too bullish,” he said. “We have very strong buying by the managed hedge funds. So the investment community, the fund buyers, have a very strong buy position, they’re long in the marketplace.

“Now, for every seller there has to be a buyer and farmers have been very aggressive in selling,” he continued. “Commercial entities, the big grain companies, have been very aggressive in selling into the international market, so they’re hedging and taking sales positions in the futures market. But what bothers me is the long positions, the buying positions. A large amount of that is being held by these hedge funds. And the challenge we’re facing is those folks can change their positions very quickly. And they tend to be speculators. They buy low and sell high, so they’re buying as prices have been going up, they’re holding these positions until it looks like the market might be turning over and going down, and then they tend to sell very aggressively, as well.

“We’re still in an uptrend. We really haven’t seen this topping of the marketplace and it’s starting to come down,” he added. “But what I’m concerned about is when that starts to happen we may see some pretty aggressive selling by these hedge funds to reverse their positions and lock in their profits and try and take their money. And again, they can buy and sell large quantities in a very short period of time.”

Olson wants to caution farmers about that.

“They may liquidate their positions and offset their positions slowly, and they have done that in the past, which would have much less impact short-term on the markets,” he said. “But they also have this habit of jumping in and out. Even right now they’re still holding some pretty aggressive long or buy positions in the marketplace.”

In the futures market, as of right now, November 2020 soybean futures are at $10.82, which would be for delivery at harvest today. The futures market price for November delivery in 2021 is $9.79. That’s over a dollar lower price for November 2021 versus November of 2020.

Olson explained that if you look at a futures price of $9.80 and you subtract out a typical basis level of about $1 at harvest for North Dakota, producers would be looking at $8.80 per bushel for contracting for delivery in 2021 at harvest.

“That’s not a bad price. When you look back at the prices we’ve seen since the trade war, $8.80 isn’t bad,” Olson said. “We’ve seen a lot lower. It’s a good price, but not a fantastic price. So the question I have for farmers is this: Is that $8.80 cash price a reasonable price? For a lot of farmers in North Dakota, you figure what their average yield is, and an $8.80 price would give you a profit on your bottom line.

“And so to start selling some soybeans, a small amount just to try and protect yourself, I think that’s always a good idea. But I’m also saying there’s a lot of unknowns that have yet to be played out,” he continued.

Looking at local prices, at one local elevator in west central Minnesota regularly followed in this column, as of Oct. 26, the November cash price for soybeans was $10.17 per bushel and basis was -63 cents under. The October 2021 futures price was listed at $9.80 and basis was -2 cents under.

“Everybody is looking for a better price, a higher price, and there’s a lot of uncertainty now about the weather conditions in South America and how large is that South American crop really going to be,” he added. “Again, coming back to the farmer and asking, ‘Well, how risk averse are you? What’s your risk profile? Are you willing to gamble that there might be additional weather problems when we get into a January or February time period?’ And if there are, you could see soybeans, especially new crop 2021 soybeans, increase pretty rapidly because there would be some risk premium put back into the marketplace.”

On the flip side, Brazil, for example, is expected to increase their planted acreage again and if they get good weather they’re going to have another record crop and, in fact, have continued to have record production for the last several years in a row.

“This is about how comfortable you are and how much risk are you willing to take? What I ask farmers is, ‘Given what you know today, what do you think the odds are that prices will go up from here versus go down from here?’ he asked. “I want farmers to think about old crop separately from new crop just because we have this big difference between the soybean crop we’re harvesting now versus the soybean crop we’re going to have next year. You need to separate those two in your mind.”

Olson noted that the current futures market, as well as the cash market is screaming at farmers saying, “Sell it now, don’t store it.” In fact, he added, if producers want to store it and want to gamble, the market is going to give them a discount because there’s an inverse in the market.

“When you look at the November futures versus the January versus the March versus the May, as we move forward in time prices actually go down. It’s called an inverse, which actually is the market telling farmers, ‘We don’t want you to store your soybeans.’ If you’re going to store soybeans, you’re gambling that the price will go up,” he explained.

“But that’s not the same message we’re getting from the 2021 crop,” he continued. “That crop is saying, ‘We’re expecting Brazil to have a record large crop’ and that’s what is currently built in to market prices. They’re expecting continued strong Chinese buying of soybeans globally, but they’re expecting a very large soybean crop out of Brazil and that Brazil will supply China for a large portion of their needs.”