Soybean Market: Truce-Driven Rally vs. Looming Overproduction – A Tactical Play with Hedges

The U.S. soybean market has been caught in a tug-of-war between short-term optimism and long-term overproduction risks. Recent price rallies, fueled by hopes of a U.S.-China trade truce and technical buying, have lifted futures from near 3-month lows. However, bearish fundamentals—from record crop yields to China's delayed purchases—loom large. This creates a precarious scenario for traders: capitalize on the near-term rebound while hedging against a supply-driven collapse.

The Short-Term Rally: Trade Truce and Technical Buying

Soybean futures staged a sharp rebound in early June 2025 after a phone call between U.S. President Trump and Chinese President Xi Jinping hinted at easing trade tensions. The July 2025 contract (ZSN25) surged 0.14% to $10.09/bu on June 5, with traders interpreting the call as a precursor to renewed export deals. Technical buyers piled in as prices broke above key resistance levels, pushing the contract to a 3-month high of $10.75/bu by mid-June.

Export data, however, offered a mixed picture. While Bangladesh and Norway stepped up purchases, China—historically the largest buyer—reported zero purchases for the week ending May 29. Analysts noted this as a red flag, but traders shrugged it off, betting that a formal trade deal would materialize by summer.

Bearish Fundamentals: Overproduction and Global Gluts

The rally's sustainability is questionable. The USDA's July 2025 WASDE report revealed a stark reality: U.S. soybean ending stocks are projected to hit 310 million bushels, a 20% increase from 2024, as bumper crops in Brazil and Argentina flood global markets. U.S. farmers, meanwhile, are on track for a record harvest, with crop condition ratings near decade highs.

The soymeal market is already in freefall, hitting a nine-year low by July 14 due to oversupply from increased domestic crush volumes. This glut is a direct result of policies favoring soybean oil—such as the Renewable Fuel Standard (RFS) and 45Z tax credits—which incentivize biodiesel production but leave soybeans and meal with fewer buyers.

Technical Levels: Key Support and Resistance

Traders must navigate these crosscurrents with precision. The July 2025 contract's price action since June highlights critical technical thresholds:

• Near-Term Support: $9.90–$9.95/bu (July 14's low of $997/bu tested this level).
• Key Resistance: $10.40/bu (a psychological barrier that, if breached, could trigger a rally toward $10.77/bu).
• Long-Term Support: $9.70–$9.80/bu (the 2024 low, which could cap losses if fundamentals deteriorate further).

Investment Strategy: A Tactical Long with Bearish Hedges

The market's volatility demands a dual approach:

1. Tactical Long Position:
2. Entry: Buy soybean futures at $10.10/bu, targeting the $10.40 resistance.
3. Stop-Loss: Set stops below $9.90/bu to exit if support fails.

4. Rationale: Near-term optimism and technical buying could push prices higher before harvest fears resurface.

5. Bearish Hedge:

6. Option 1: Sell call options at $10.40/bu to limit upside gains.

7. Option 2: Short soybean oil futures (ZL25), which are surging due to biofuel policies, to offset soybean losses if prices collapse.

8. Risk Management:

9. Monitor China's purchase activity closely. A delay beyond mid-2025 could trigger a crash.
10. Track U.S. crop progress; any weather-related disruptions might temporarily buoy prices.

Conclusion: Ride the Rally, but Prepare for the Fall

The soybean market's current optimism is a fleeting opportunity. While traders can profit from the truce-driven rebound, the long-term outlook is grim. Record supplies, Brazil's dominance, and China's cautious stance ensure that prices will eventually succumb to fundamentals. A tactical long position with strict stops, coupled with bearish hedges, offers the best balance between capitalizing on short-term gains and protecting against the inevitable supply glut.

In this high-stakes game, patience and discipline will separate winners from losers.