Traders like to tell themselves stories, and a tale well-told can inspire them to take positions in agriculture. While political battles preoccupied financial markets this fall, soybeans could soon be the commodity that regales the market.
Even though central Brazil’s dry season is over, stress seemed to re-emerge over the last month or so. Here’s a stop-motion video featuring weekly readings of the Vegetation Health Index, which ended last week 18% below average. It was much higher than the last two years, when Brazil produced record yields.
Keep in mind, bad crops aren’t unusual anywhere around the world, and South America is no exception. And Brazil’s growing season for soybeans is long. Planting in some areas goes on until the end of the year, about the same time combines start rolling in other parts of their large production region.
Low yield impacts exports
American weather models continue the drier pattern into mid-December. Their European counterpart is also on the dry side through February, though not completely parched. Given this outlook, a 13% drop in production compared to USDA’s last projection is not out of the question, which could slash Brazil’s exports by 20%.
Under that scenario, U.S. sales could increase, dropping carryout expected at the end of the 2025-26 marketing year enough to boost prices sharply. If the market has legs for a really good story, $17 nearby futures or more aren’t out of the question. That would propel the nearby to levels visited only in the wake of the 2012 drought and the 2021-22 supply chain spike.
But is this prospect just a fairy tale?
Will China make good on deal?
Results after the first two months of the marketing year are promising. Just how promising is still hard to figure because U.S. data won’t be fully updated for another month. China is due to report its November purchases next week. Totals through October were up nearly 15% year-on-year.
Under the deal reached last month, China agreed to buy another 441 million bushels of U.S. soybeans by the end of 2025, along with nearly 920 million more annually through 2028. Still, if met, out-year commitments are less than during the peak export years to China before the first trade war—and there are concerns even this level of sales may be unrealistic.
In addition to availability of supplies, demand from China is unknown. Imports traditionally reflect economic growth, where Beijing faces more headwinds. According to data released over the weekend, manufacturing continues to reflect contraction and government debt limits the amount of subsidies that could be doled out to boost consumption.
Hunt these targets
Nearby soybeans traded in a range of $2.2425 over the past year but tried to cobble together a story for bulls this fall.
- The next upside target is $11.88, which would complete a 38.2% retracement of the selloff from $15.8075 to $9.4525.
- If that trip wire falls, target $12.5675, $13.3325 and $14.42.
New crop November 2026 also joined the rally last week, inching closer to the best level since May 2024. Ability to hold $11 opens the door to $11.435 and $11.875 and the contract high at $12.41. Watch for selling around these targets, which offer growers a shot at a profit if yields hold up.