Soybeans: The Seasonal Pattern or the WASDE Report – Which Will Tap Out First?

Welcome to the dynamic world of soybean market trading, where the ever-changing landscape is intertwined with the United States Department of Agriculture (USDA) reports. The most dominant report is the monthly World Agricultural Supply and Demand Estimate (WASDE). These reports play a pivotal role in shaping the trajectory of soybean prices, providing crucial insights into production, supply, and demand dynamics. As traders navigate this market, the USDA reports act as a compass, influencing trading strategies and market sentiment. 

The soybean market had been trying to gain some upside traction as it came into the recent WASDE report. Overall, the report was bearish for soybeans. However, an upcoming seasonal pattern could enforce the upward price movement. Does this sound like a battle? It sure does! Think of this event as a Mixed Martial Arts (MMA) fight. There will only be one winner. But which one will tap out first? 

Markets Forward Looking Nature 

You've likely encountered the notion that the market operates as a "forward-looking mechanism" or a "discounting mechanism." Many traders I engage with profess to grasp this concept, but their trading choices often suggest otherwise. 

Essentially, this expression underscores the market's primary interest in future developments rather than dwelling on past events or current occurrences. Extensive research indicates that, at any given moment, prevailing market prices encapsulate all presently available information. In contrast, economic or commodity reports predominantly rely on historical data, typically spanning the last one to three months, to assess the economy's or commodities' overall health. The market's ability to anticipate and factor in new information before it becomes common knowledge is crucial to recognize when navigating trading decisions.

United States (US) Soybean 2023/24 Outlook 

Let's break down the recent WASDE report for the soybean market: 

1. Increased Production: The forecast for soybean production in the US for the 2023/2024 season is 4.13 billion bushels. This represents an increase of 25 million bushels, primarily attributed to higher yields.
2. Regional Production Changes: The report mentions specific states experiencing notable changes in production. These include Wisconsin, Tennessee, North Dakota, South Dakota, and Ohio. It would be insightful to understand the reasons behind these changes state-by-state.
3. Crush and Exports: The report indicates that Crush (referring to the process of extracting oil from soybeans) and exports are unchanged. This implies that a surge in domestic processing or international demand is not absorbing the increased production.
4. Ending Stocks: The ending stocks of soybeans are projected to be 245 million bushels. This is an increase, likely reflecting the higher production levels. Ending stock numbers represent the supply available at the end of the marketing year and can influence future prices.

Seasonal Pattern 

Now that the US harvest season has ended and prices have reacted to the new supply coming to the market, it's time to analyze the next phase of this new crop. Due to the cyclical nature of crops' planting and harvesting seasons, there are many consistent seasonal patterns to trade.   

Significant seasonal lows are generally established around the harvesting season for crops. Moore Research Center, Inc. (MRCI) research has identified a seasonal pattern for rising prices in the March soybean futures contract, revealing a seasonal window that has seen prices rise for 14 of the past 15 years. During this period, two years did not have a closing daily drawdown. 

It's important to note that while seasonal patterns can provide valuable insights, they should not be the sole basis for trading decisions. Traders must also consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading choices.

Source: MRCI

The yellow area on the chart illustrates the seasonal window that 93% of the time during the past 15 years, March soybeans closed higher on December 29 than November 17. As a note, the trade does not have to be entered on the optimized entry date, November 17, but traders could look for bullish market activity at any time during the seasonal window. 

In Closing 

Traders wishing to participate in the soybean market can trade the standard-size (ZS) futures contract or the mini-size (XS) Barchart (XK.) An exchange-traded fund (ETF) listed as SOYB is available for equity traders.

It's time to bet on who will win this upcoming fight. Only one winner walks out of the cage. Which will it be: The Seasonal Pattern or The WASDE Report? 

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On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.