Soybeans: A Bullish Turn Amid Supply Surprises and Policy Crossroads

The soybean market finds itself at a critical juncture, with divergent crop estimates, unresolved trade tensions, and shifting fund positioning creating a volatile but potentially rewarding environment for traders. While the USDA's conservative supply forecast contrasts sharply with Brazil's bullish private projections, the interplay of policy delays and technical dynamics suggests a near-term buying opportunity. Here's why the path to $10.20/bu by late Q3 could be clearer than the market anticipates—and where to position for it.

The Supply Discrepancy: A Catalyst for Volatility

The USDA's July WASDE report projected 2025/26 Brazilian soybean production at 175 million metric tons (MMT), while Safras & Mercado, a leading Brazilian agriforecaster, estimates 179.88 MMT. This 4.88 MMT gap—equivalent to roughly 2.8% of global supply—reflects differing assumptions about planting acreage and yield trends. Safras factors in expanded farmland (48.2 million hectares vs. USDA's 47.8 million) and favorable weather in key regions, while the USDA retains a cautious stance, likely reflecting historical skepticism toward South American overestimation risks.

The market has priced in the USDA's lower number, but a resolution of this gap could send prices sharply higher. If Safras proves correct, global ending stocks—already projected at 126.07 MMT—would tighten further, reducing the buffer for unexpected demand spikes or weather shocks.

Trade Policy: The Missing Demand Catalyst

The stalemate in U.S.-China trade negotiations remains a critical wildcard. China's soybean imports for 2025/26 are forecast at 112 MMT, up from 108 MMT last year, but this assumes Beijing accelerates purchases to meet its Phase 1 commitments. A delay or breakdown in talks could redirect demand toward cheaper Brazilian supplies, pressuring U.S. prices. However, the market has already discounted this risk:

The data shows China's reliance on Brazilian beans is near record levels, with U.S. market share dipping to 25%. A sudden policy shift—such as a tariff rollback or new procurement deal—could trigger a rapid U.S. price rebound. Traders should monitor USDA export sales reports for any signs of accelerated Chinese buying.

Fund Positioning: A Short Squeeze in the Making

Managed money has shifted to a net short position in soybeans, according to CFTC data, reflecting skepticism about demand and the ample supply narrative. This positioning sets the stage for a potential short-covering rally if fundamentals improve unexpectedly.

A break above $9.75/bu could force shorts to exit, amplifying upward momentum. The key trigger? A USDA report revising U.S. ending stocks lower due to stronger crush demand or export surprises.

Technical Setup: $9.50 as a Bullish Pivot

The chart below highlights a critical support zone at $9.50/bu, where the 200-day moving average and Fibonacci retracement levels converge. A sustained close above this level would signal a resumption of the uptrend toward $10.20/bu, a target defined by pre-2024 highs and resistance-turned-support.

Trade Strategy:
- Buy on dips below $9.50/bu, targeting $10.20.
- Stop-loss below $9.20 to account for a potential breakdown.
- Monitor weekly export sales and USDA's August WASDE for clues on supply-demand balance.

Risks to the Bullish Case

1. South American Weather: Heavy rains in Brazil's Center-West region or frost in Argentina's key growing areas could disrupt harvests, but current forecasts suggest favorable conditions.
2. Trade Deal Breakthrough: A sudden resolution of U.S.-China tariffs might accelerate demand, pushing prices higher than projected.
3. Global Oil Demand Shifts: If biofuel policies (e.g., EPA's RFS) weaken, reduced soybean oil demand could cap prices.

Conclusion: A Technical and Fundamental Sweet Spot

The soybean market is caught in a tug-of-war between overestimated supply and underestimated policy risks. While the USDA-Safras divergence and managed-money short positioning create headwinds, the confluence of technical support at $9.50 and the potential for a China policy surprise makes this a compelling entry point. Investors should treat dips below $9.50 as a buying opportunity, with a clear path to $10.20 by late Q3—provided fundamentals don't deteriorate further.

As always, stay attuned to weather updates and trade headlines, but the setup here favors bulls.