Soybean Seasonality Suggests Rally May End Soon
Soybean Seasonality Suggests Rally May End Soon
If June’s WASDE report indicates a strong northern crop, prices could fall in line with with trends seen over the last three decade
- Soybeans are trading at their highest level since January as traders eye profits.
- The June WASDE report moves into focus as the crop suffers in Argentina and Brazil.
- Seasonality suggests soybeans are due for a period of weakness.
Soybeans rally as South American crop falters
The July soybeans contract (/ZSN4) is up 7% in May as of today. That’s the best percentage gain for the crop since June 2022 and comes amid a bullish start to the year that has squeezed some shorts out of the market.
The move comes amid a delayed harvest season in Argentina—one of the world’s largest soybean producers, regularly ranking in the top three behind the United States and Brazil.
Government data in Argentina showed farmers had sold only about 30% of the harvest in early May, the slowest in nearly a decade.
WASDE and CONAB reports
The May report on WASDE (World Agriculture Supply and Demand Estimates) from the U.S. Department of Agriculture (USDA) showed the 2024/25 outlook for U.S. soybeans is for higher supply and ending stocks compared to 2023/24.
The May WASDE projected 4.45 billion bushels, which was up by 285 million bushels. Total U.S. oilseed production was projected at 131.2 million tons, an 8.9 million increase from 2023/24. Despite the woes in Argentina, the WASDE sees Argentina’s soybean output at 51 million tons, and called for high production from China. Brazil’s CONAB (Companhia Nacional de Abastecimento) is due June 13.
These figures may be decreased in the June WASDE—scheduled to release June 12—because of heavy rains in Argentina and Brazil. The Rio Grande do Sul region in Brazil, which is a key crop state in the country, has seen the crop damaged by excessive rainfall.
Seasonal trends suggest soybeans may sell off through the summer
Despite the rally, seasonal trends suggest soybeans may sell off as we move toward the harvest season in the United States.
Analyzing the seasonality of soybeans futures prices going back to 1995 shows prices start to decline in May, followed by an acceleration in selling in June—with an average 3.7% decrease in June going back to 1995. That’s followed by an average decline of 1% in July before a modest 0.5% recovery in August. Then they sink again in September.
Typically, the Southern hemisphere harvests the crop in May and the Northern Hemisphere in November. That explains the rise in prices, given that the southern crop was delayed because of weather.
Now, the focus turns to the northern crop, and if June’s WASDE report maintains a strong showing for production, it could send prices lower in line with the seasonal trends we’ve seen over the last three decades.
Trading soybean futures
With soybeans trading near the highest levels since January, we could see some profit-taking as we enter June.
The July soybeans contract is trading with an implied volatility rank (IVR) of 38.5. That said, there is some premium in the June 30 strike for those who prefer playing the downside by selling call spreads.
Selling a short call vertical for the June 21 expiration by selling the 1,260 call and buying the 1,270 call gives a probability of profit (POP) of 56% and a max profit of $181.25 and a max loss of $318.75. That trade risks losing $1.76 for every dollar spent on the trade.
Conversely, you can sell a futures contract, which would commit about $2,640 of margin to trade the contract and controls a notional value of about $62,437.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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