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Todd's Take
Wednesday, March 22, 2017 6:25AM CDT
By Todd Hultman
DTN Analyst

Similar to last week's column on corn's seasonal influence, this week takes a look at the numbers for soybeans. Using the same logic of trying to identify a time of year when the market is not focused on new soybeans being added to supplies, we start again at Nov. 30, after most of the U.S. harvest is typically over.

Finding an exit date for soybeans' drawdown season is tricky as Brazil's exports have become more competitive with U.S. supplies in the past 10 years. Empirically, however, we can look at the 10-year seasonal average for soybeans in DTN's ProphetX and see that the seasonal peak still comes on July 4, later than many might expect.

Why hasn't Brazil's production shifted the seasonal peak to an earlier date yet? My guess is because neither Brazil nor the U.S. has the ability to supply the world's needs by itself. In other words, Brazil's soybean crop is needed, but can't be declared bearish until we know more about how big the U.S. crop turns out to be.

Since soybeans' seasonal peak has been arriving roughly one month later than corn's, I decided to compare two holding periods for soybeans. The first period tested covered the same six months after Nov. 30 that we tested for corn. The results were impressive.

Using DTN's national index of cash soybean prices from 1993 through 2016, owning soybeans perpetually produced a theoretical gain of $3.96 a bushel, or roughly 16 cents per year. Restricting the holding period from Nov. 30 to May 31 each year increased the theoretical gain to $18.70 a bushel, or nearly 13 cents a bushel per month held, excluding slippage and commissions.

If we extend the holding period one month longer to June 30, the theoretical gain increases to $22.64 a bushel, or slightly more than 13 cents a bushel per month held. Both scenarios suggest that storing soybeans has been a profitable venture even after deducting storage costs.

While holding soybeans for seven months increased the total gain by nearly $4.00 a bushel, it should be noted that equity changes for the six-month scenario showed a more consistent upward path. I mention that because storing soybeans wasn't profitable every year and stress is always a factor. Emotionally speaking, some will find it easier to follow a strategy that has a more consistent, positive performance.

As with corn, if you get nothing else out of this study, be aware of how dangerous it has been to own cash soybeans from July 1 to the end of November. A 24-year loss of $18.68 a bushel, plus storage, plus interest speaks for itself and should top any marketing list of things not to do.

We can never guarantee that the future will unfold the same way it has in the past, and each year will have its own challenges. But for both corn and soybeans, it seems safe to say that the seasonal ebb and flow of prices should always be one of the first factors to consider, as past prices have shown a distinct change in behavior between the two different times of the year.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1


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