USDA's June 29 downward adjustment of soybean planted acreage could provide just enough of a spark to get November soybeans moving toward the $9 mark, according to an analyst speaking at the Minneapolis Grain Exchange teleconference on USDA's acreage report.
The USDA report led the charge toward higher prices for soybean futures, which opened limit up and closed 40 cents higher at $8.50, on June 29, a Friday. Soybean futures have gained 24 percent in value since the beginning of the year, compared to a 15 percent loss for corn.
USDA estimated that farmers will plant 64.08 million acres of soybeans this year, compared with trade estimates of 68 million acres and with the March USDA preliminary forecast of 67.14 million acres.
This would take projected soybean stocks from 610 million bushels for this marketing year down to 263 million bushels for 2007-08 with a projected crop of 2.65 billion bushels this year.
USDA raised its estimate of corn planted acreage by 2.43 million acres from the March intentions report, the largest adjustment higher since 1971. USDA indicated that producers intend to plant 92.89 million acres of corn this season, compared with the average trade estimate of 90.62 million acres and the March USDA preliminary forecast of 90.45 million acres.
Joe Victor, vice president of marketing, Allendale, says harvested acres for corn at around 85.4 million acres with an average corn yield at 149.8 bushels per acre would produce a total crop of 12.8 billion bushels. Added to 987 million bushels of carryin stock that would create a total supply of 13.79 billion bushels. Total usage is projected at 12.4 billion bushels.
This would produce ending stocks for corn for the 2007-08 season of 1.38 billion bushels, compared with the previous forecast of 997 million bushels and 987 million for the 2006-07 season.”
Victor notes that the increase in corn acres comes from high-yielding states the heart of the Corn Belt. He said 1.75 million acres of the 2.43 million-acre increase is coming from Minnesota, Iowa, Illinois, Indiana and Ohio.
According to Victor, because of the recent weakness in corn prices, South Korea has been a huge buyer of U.S. corn and on the recent price dip in corn (expected with the bearish news of higher acreage), other countries should follow suit.
“The next dominant indicator for corn is how it gets through the pollination period in July and for soybeans, getting through pod fill in August. On corn, we see a corrective dip to as low as $3.30 on December futures, but we look to see futures rally before expiration right back up to $3.80 to $4.
“We also anticipate that the basis will also want to improve because we have created a technical dip in futures that has stimulated demand, not only for exports and ethanol, but also for feed use. The best opportunity is going to be right at the beginning of harvest, to forward contract or make cash sales on corn.
“For soybeans, we anticipate a 75-cent to a dollar correction downward going into pod fill. We'll be back into an $8 to $9 range for November futures before expiration.
“We have to be aware that with the higher soybean futures, we're likely to see higher soybean oil futures, and the concept by the investment community is to buy soybean oil. We know that the breakeven price for conversion of soybean oil to biodiesel is 31 cents per pound. We start to push this higher, and push soybean oil futures to 37 to 40 cents a pound, you're going to see capacity use fall off in some biodiesel plants.”
Another downside for soybeans is that because of lower acres in soybeans, “you can bet that not only Argentina and Brazil, but Uruguay and Paraguay, are going to take complete advantage of these higher prices and produce record crops this year and next. We're going to see cash prices for soybeans being pressured by a very dominant projection for crops coming out of South America.”