December Corn fluctuated in a $1.36 range with November Soybeans fluctuating $2.34 in the month of June alone.  With questions around North American weather, yield impacts, export demand and renewable fuel policy, the Grain and Oilseed markets have a lot to navigate.  The CME Group ag complex has seen record activity across futures and options as market participants utilize risk management strategies to handle choppy price action.

Post June 30th Acreage report, the market has a better handle on the supply side with Corn showing an increase of planted acres of 2.24 million and a decrease of 4 million acres for Soybeans compared to the March USDA report. The balance sheet now reflects a tighter situation for Soybeans moving forward as the market navigates weather and export numbers.

We recently asked four top agricultural analysts their view on the current market situation and how participants should look at risk moving into harvest.

There is now zero margin for error in the Soybean balance sheet. That big acreage drop was a real surprise and means we will likely ration Soybeans, even with normal weather and a trendline 52 bushel-per-acre yield. Farmers say that "Soybeans are made in August", so there is still plenty of runway and weather ahead of us.

USDA’s surprise cut in soybean acres means that there is zero margin for error for this year’s soybean crop. The market has two objectives at this point – ration demand and incentivize expansion of area planted in Brazil 90 days from now. 

With Brazil basis pretty poor for new crop soybeans currently, that means the market has some work to do. The biggest part of the demand rationing needs to be on the export side, considering the expansion of new crush facilities that are opening that will be going strong. China has been aggressive in shipping Brazilian soybeans at a pace exceeding crush. Surplus soybeans going into storage May through August are expected to total near 12 million metric tons. That could then reduce buying needs this fall from the United States. So there is some room for U.S. exports to drop sufficiently as long as U.S. soybean yields stay close to trend, but that’s not a given.

Assuming that aggregate demand remains unchanged, lower than expected soybean acreage would ultimately reduce global supplies. The reduction in aggregate supply could result in elevated prices through the balance of the crop year, as the same amount of buyers are bidding on fewer available supplies.

The lower soybean acres will tighten both the U.S. and world balance sheets. The weather over the 60 days will determine how tight the balance sheet will get. If the crop ends below the trend yield of 52 bushels per acre, the market may move higher as it attempts to ration demand and encourage imports to offset the lost production.