Hot, dry weather in the Midwest in August didn't seem like much of a news story at the time. But the detrimental impact it had on soybean production in the four top-producing states could push U.S. soybean prices to $8 or $9 in the short term, analysts say.
In its October crop production report, USDA projected U.S. average soybean yield at 34 bushels per acre, down 2.4 bushels from the previous month. Iowa, Illinois and Minnesota were all down 5 bushels from last month, according to USDA.
“The size of the soybean seeds (in the affected region) continue to dry up to BB size or less, and that is why our yields are not coming through,” said Jerry Gidel, an analyst with Midland Research Inc.
USDA also pegged total U.S. soybean production at 2.47 billion bushels, down 7 percent from last month and the lowest production since 1996.
“A shockingly low number,” said grain analyst Terry Roggensack. “It sets up a very interesting situation, especially in the soybean oil market. Ninety-five percent of the oil market is domestic, and the endusers just do not use less oil when prices move higher.”
This, and the fact that China is still importing soybeans, makes for a very difficult task for the soybean market. “We have to ration the supply of beans and knock down the export pace dramatically,” Roggensack said. “That could take sharply higher prices short term.”
South American soybean producers continue to be strong export competitors, but that's not going to change the short-term problem, according to Roggensack. “Certainly, it has implications for the spreads. The November and January soybeans may move sharply higher while the May and July soybeans do not necessarily need to keep up.”
Analysts advise producers to not turn their backs to prices in the coming weeks, as they will likely be the best prices they'll see this year.
Once resistance at $7.20 is broken through, $7.80- to $8-beans is the next logical level to the upside, according to Gidel. “If the overseas buyers come into this market in the next couple of weeks, we could potentially go higher than that.”
Roggensack says $7.11 is the resistance area. “In the past, we've seen that once the market gets back that, there are very few times that it stops in between there and $9.06. I think initially, we need to take a run at the $8 level and see if that can reduce the demand significantly.”
Meanwhile, soybean ending stocks were estimated at 130 million bushels, slightly lower than last month's estimate of 135 million bushels and down from last year's 140 million bushels.