Weather during the next few weeks will be “incredibly important” for U.S. soybean markets, according to analyst Carroll Brunthaver with Sparks/Refco in Memphis, Tenn. He says if moisture and temperatures continue to be unfavorable for crop development, and expected yields don't materialize, prices could move sharply upward.
Brunthaver, speaking at the AgTechnology Field Day, July 28 at Agricenter International in Memphis, said the news behind soybean prices begins with a familiar refrain — strong soybean demand.
“We were using 2 billion bushels of soybeans a few years ago. Today, we're using 3 billion bushels. In 2001, China took 165 million bushels. Today, they've already booked 435 million bushels. In the United States, with new biodiesel plants coming on line, if the price of crude stays over $40, biodiesel is going to be very important to soybean producers.”
Soybean plantings of 72.4 million acres and a projected yield of 39.2 bushels would produce a carryout of 190 million bushels, compared to 284 million bushels in carryin stocks. “We will use about 100 million bushels more than we will be producing, so we're really getting close to some interesting kinds of numbers. Last year, 112 million bushels of carryout took beans up to $10 plus.
“If you take the average yield down to 38 bushels, you get a carryout of 96 million bushels, below the number which took us to $10. That's assuming no significant increase in soybean demand from biodiesel. This is why the market today is extremely nervous. We're up 30 cents, we're down 30 cents.”
Brunthaver noted that U.S. soybean crop conditions reported by USDA are below the 10-year average for crop conditions at this time. “The bean crop is made in August. The temperature and rainfall in August are extremely important. That's when you make the crop or lose it.”
He advises producers to watch three things: weather in August and September, biodiesel manufacturing and Chinese imports. Changes in any of these will shake up the soybean markets.
“China is the big swing factor. They can go from 100 million bushels of imports to 400 million. The weather there has been hot and dry. The Chinese minister of agriculture has stated that the country needs to protect food prices in China. That says to me that they will limit their corn exports, perhaps import some corn and maybe import more beans than what we've been talking about.”
“Corn is more important to Mid-South farmers than you think,” noted Brunthaver. “Last year, corn took 2 million acres out of soybeans. If the bean carryout drops to 150 million to 170 million bushels this year, beans need to buy back that acreage.”
That's easier said than done, according to Brunthaver. “Corn demand is fabulous. Two years ago, we used 995 million bushels of corn for ethanol. This coming season, we think it will be 1.4 billion bushels, an almost 50 percent increase for one year. Legislation is on the books to increase this dramatically in the years ahead.”
U.S. corn demand is roughly 10.8 billion bushels, according to Brunthaver. A corn yield of 142 bushels, “which is really optimistic,” on 74.4 million acres, “would give us a 10.6 million-bushel crop.”
“If we harvest a 135-bushel crop, which is more likely, we get a 10 billion-bushel crop with a 10.8 billion-bushel demand. If you slip down to 130 bushels, which some people are talking about (because of drought in the Midwest), you have a really interesting situation, maybe $3 corn. Farmers up north are going to plant the dickens out of corn again and bean acres are going to have to fight hard for that acreage.”
China has the potential to take corn carryout even lower, according to Brunthaver. “China had been exporting 3 million to 5 million tons of corn annually. This coming season, they may actually be an importer of corn. The difference between 3 million tons in exports and 5 million tons in imports is 8 million tons, or 400 million bushels.”
“Today's corn and soybean crops are really interesting,” Brunthaver said. “The weather over the next 30 days is incredibly important.”
Last year's “fabulous” yield of 885 pounds will be a hard act to follow, noted Brunthaver. “USDA has this year's yield at 770 pounds, although some of us think it will be a little higher than that. This year's production may be 19 million bales compared to last year's 23 million bales.”
China's behavior also looms over the global cotton market. “We have been shipping a lot of cotton because the Step 2 subsidy payment is going to disappear. So the sales from here forward are going to be a little disappointing.”
Brunthaver isn't optimistic on cotton pricing, saying there's a chance the natural fiber could trade in the 40s.
“This year's crop is down, and there are some reports from the field that the crop is not doing all that well. But with carryout inching up toward 43 million hundredweight, compared to 35 million hundredweight last year, I can't really get excited about taking rice prices up very much, if any.”
Globally, Brunthaver says to watch India, “which is having some problems getting all its rice in. Vietnam and Thailand have been selling the dickens out of rice, so there is some competition.”
Wheat continues to ride on the coattails of the corn market, according to Brunthaver. “There is a large carryover of 125 million bushels for soft red winter wheat, compared to 98 million bushels last year and 69 million bushels the year before that. Prices of wheat are being held up by corn and soybeans. As long as corn stays where it is or works higher, it's going to pull wheat up with it because it is a competitor for feeding. If corn settles down, wheat could work lower.”