Weather Wars and Oils: Navigating the U.S. Soy and Grain Markets in July

The U.S. soybean and grains markets are caught in a tug-of-war between weather-driven supply optimism and geopolitical energy ties, creating stark divergences between soybean and soybean oil (soyoil) price dynamics. As the July USDA WASDE report reshapes supply forecasts, traders must parse weather impacts, technical levels, and fund flows to capitalize on opportunities in this volatile sector. Let's dissect the key trends and strategies to deploy now.

The Weather Factor: Why Soybeans Are Under Pressure

Favorable Midwest rains and ideal growing conditions have boosted corn and soybean crop ratings to near-ideal levels. The USDA's July WASDE report confirmed this, lowering corn production by only 115 million bushels due to reduced acres but keeping yields steady at 181 bushels/acre. Soybean production dipped slightly to 4.335 billion bushels, driven by fewer planted acres.

This surplus outlook is weighing on soybean prices, which have fallen to $10.10/bushel—the lowest since early 2023. The technicals reflect this bearish sentiment: corn futures (July contract) have slumped to $4.79, testing critical support near the $4.70–$4.75 range ().

Soyoil's Resilience: Energy Ties and Biodiesel Demand

While soybeans struggle, soyoil is holding its ground. Despite soybean oversupply, soyoil prices remain near $48.34/cwt, buoyed by biodiesel demand and global energy price trends. The U.S.-China trade war's lingering effects on soybean exports have paradoxically strengthened soyoil's industrial appeal.

This divergence highlights soyoil's decoupling from soybean fundamentals. Biodiesel mandates, rising palm oil prices, and ethanol's comeback are all supporting soyoil's floor. Resistance at $49.46/cwt (April's high) is critical—breaking it could propel prices to $50/cwt, while support at $47.00/cwt acts as a safety net.

Fund Flows: Overextended Shorts and Hidden Opportunities

The Commitment of Traders (COT) report reveals a crowded short trade in corn and soybeans, with speculative funds amassing net short positions of 206,463 and 425 contracts, respectively. This extreme bearish positioning could set up a short squeeze if weather turns unfavorable or demand surprises.

Meanwhile, soyoil's managed money positions remain neutral, suggesting less overcrowding. This asymmetry favors soyoil as a safer long bet, while corn's technical lows near $4.70 may attract contrarian buyers if the USDA's August report revises estimates downward.

Export Data Contradictions: Corn's Strength vs. Soybeans' Weakness

Despite record old-crop corn exports (2.75 billion bushels), new-crop projections remain stagnant at 2.675 billion. This contrast reflects strong global demand for U.S. corn against South American competition, while soybeans face a more complex landscape.

Soybean exports face headwinds: new-crop sales are 15% ahead of 2024's pace, but Chinese buyers remain cautious amid U.S.-China tariff disputes. Brazil's 175 million-ton soy harvest and Argentina's 49 million-ton haul are flooding markets, squeezing U.S. margins. This creates a “buy the dip” scenario for corn but a risk of further soyoil outperformance as energy prices rise.

Strategic Recommendations for Traders

1. Soybean Oil: Go Long at Support Levels
2. Entry: Buy soyoil futures (August contract) at $47.83/cwt (near-term support).
3. Target: $49.46/cwt (April high), with a stretch goal of $50/cwt.
4. Stop Loss: Below $47.00/cwt.

5. Rationale: Biodiesel demand and energy price linkages provide a floor, while COT data shows minimal overcrowding.

6. Corn: Wait for a USDA Surprise

7. Play: Look to buy dips near $4.70–$4.75 if the August 12 USDA report revises yields lower or highlights demand resilience.
8. Avoid: Aggressive longs unless technical resistance at $4.96 is breached.

9. Watch: Global corn exports (projected at 195.81 million metric tons) and Brazil's planting progress.

10. Avoid Soybeans for Now

11. Reason: Oversupply and crowded shorts make soybeans vulnerable to further declines. Only consider long positions if prices drop below $9.80/bushel (200-day moving average) and the USDA revises demand upward.

Final Word: Ride the Divergence

The July USDA report has set the stage for a weather-driven market. Soybeans are stuck in a supply glut, while soyoil's industrial ties and energy correlations offer a hedge against grain market volatility. Monitor the August 12 WASDE closely—any bullish surprises on corn demand or soybean yield cuts could trigger sharp rallies. For now, soyoil's technical resilience and corn's oversold short positions make them the plays to watch in this weather-dominated landscape.

The numbers tell the story—positioning now could yield big rewards when the market reacts to the next USDA update.