The news from the grain markets continues to surprise growers who had all but given up hope they would ever see $10 soybeans – let alone $11 ones – again. Corn futures also look more promising.
In its June 10 World Agricultural Supply and Demand Estimates (WASDE), USDA reported several positive developments that might help sustain the rallies in corn and soybean futures spawned by the return of hedge funds into the commodity markets.
USDA economists lowered the forecast for soybean beginning stocks 30 million bushels to 370 million for the 2016-17 marketing year and ending stocks for 2016-17 45 million bushels to 260 million. They raised 2015-16 exports 20 million bushels to 1.76 billion and the soybean crush for 2015-16 10 million bushels to 1.89 billion.
Most of the bullish news continues to be due to weather problems in Brazil and Argentina, higher oil prices and a weakening of the U.S. dollar, which analysts say has led hedge fund managers to move from equities into the commodity markets.
“We have seen unusually high export demand recently that’s reflected in this report,” said Grant Kimberley, director of market development for the Iowa Soybean Association. “We expect demand to keep chugging along. With weather concerns in South America, the U.S. could soon be the only soybean store in town, and our shelves are full for now.
“At this rate we may see even lower ending stocks before the marketing year is over,” Kimberley noted. “The biggest factor now is watching U.S. weather this summer.”
Brazil down 2 million tons
According to USDA’s June report, Brazil’s soybean crop is 2 million tons less than earlier projections at 97 million tons. Hot, dry conditions in the center-west and northeast parts of the country reduced yields. Extreme wet weather and flooding curtailed soybean production and exports in Argentina.
Kimberly said increases in U.S. soybean and soybean meal exports are primarily fueling the recent week-after-week price rally not seen since the mid-1970s. November soybeans on the Chicago Board of Trade increased 10 cents after the report was released, trading at more than $11.60 per bushel. New-crop beans have jumped about $2.50 since early March.
The developments of the last two months have put new emphasis on the need for growers to follow the markets and be prepared to act when futures present opportunities for pricing, according to Matt Bennett, a farmer and grain marketing consultant from Winsor, Ill.
The May WASDE report, for example, estimated a much lower than expected soybean carryover of 305 million bushels and predicted increased demand for U.S. soybeans due to a number of factors, including the poor weather in South America and a softer U.S. dollar.
As a result, July contract soybeans closed more than 57 cents higher on May 10, the day the May WASDE report was released, at $10.84. July corn also edged up 12 cents per bushel, closing at $3.81.
Preparing for price moves
“Seasoned grain marketers had offers in ahead of time, because they understand that whenever there is a report coming out, there is typically very high volatility associated with that,” says Bennett. “In that situation, there will always be a chance for opportunities. The key is to be proactive and be prepared.”
Bennett recommends a grower follow these three tips:
- Know your break-even prices. Bennett suggests that growers should start by determining the farm’s break-even price and profitability potential. “Especially in years when the profitability margin is so slim, I’m a big advocate of knowing what your break-even prices are early in the season.” He has a Profitability Calculator, which is available at http://www.channel.com/Markets/Pages/Profitability-Calculator.aspx.
- Have a plan. Once growers have calculated the break-even price, they will know when to sell their grain for optimum profitability. “If the markets present an opportunity to lock in some profitable prices, he knows when to take advantage of possible sales. For example, if soybeans get to the grower’s price objective, he can go ahead and sell an increment of the crop.”
- Be flexible and proactive. Bennett recommends growers reuse the Calculator as they progress through the growing season to reflect what is happening in the field and in the markets, to make sure grain marketing decisions are based on the most current data. “I always encourage growers to continue to update their break-even pricing because it can definitely help them to look at hard numbers and make decisions that are more business-based than emotional.”
So what should growers be expecting in the weeks ahead? Extension marketing specialist Scott Stiles says growers need to keep an eye on indicators such as the net-long positions of the speculators who operate hedge funds.
Watch commitment of traders
Stiles, who works for the University of Arkansas System Division of Agriculture and is based at Arkansas State University in Jonesboro, said the changes in net-long positions were one of the first tip-offs that prices were moving higher in the spring.
“Each Friday the CFTC puts out a report called the Commitment of Traders,” he said. “What I’m looking at is the net position of managed money and other reportables. The position will change from week to week, but you need to look at the trend. When they begin to liquidate their net long positions, that will be our signal the top is in these markets.”
Back to USDA’s June 10 WASDE, John Baize, an oilseed expert based in Falls Church, Va., said the report is clearly bullish, noting soybean use is higher than expected as the current marketing year winds down.
“This was a greater stocks reduction than the average trade estimates,” Baize said.
Another positive, Baize said, is the government raised export projects for the current marketing year and the next as well based on early-season export projections. Exports are projected 15 million bushels higher for 2016-17 at 1.9 billion bushels.
“That’s very positive,” Baize said. However, he cautions “a downward price correction could occur as many industry experts believe prices have risen too high.”
The next stage for corn and soybean prices will whether a weather market begins to develop across the Midwest. Current forecasts are for rain in Iowa and the central Corn Belt to be followed by a period of hot, dry weather.
Analysts continue to debate how long it will take for the El Nino phenomenon that helped reduce the crops in Brazil and Argentina to transfer to La Nina, which usually means hotter, dryer weather in the central U.S.. The answer to that question could go a long ways toward determining the next phase of corn and soybean prices.
For more information, visit http://www.usda.gov/oce/commodity/wasde/latest.pdf.