Soybeans should lead the way toward higher prices in the coming months, due largely to friendly supply and demand numbers, according to Brian Hoops, a grain analyst with Midwest Market Solutions.
Hoops, speaking at a Minneapolis Grain Exchange press briefing on USDA’s Nov. 9 Crop Report and World Agricultural Supply and Demand Estimates, noted that declining soybean yields which brought production down to 3.375 billion bushels, “makes ending stocks a very tight 185 million bushels.”
USDA also increased soybean exports by 50 million bushels to a record 1.57 billion bushels. “The real story here is demand. USDA has underestimated final demand in November for 15 out of the last 20 years. Now we can probably make that 16 out of 21.”
The strong demand should push prices higher, according to Hoops.
“I think you have to look at the soybean market trying to push higher and make new highs as we reach the end of the year. It’s unlikely that we’re going to see major setbacks in the soybean markets, other than profit-taking pullbacks. The end users will be there aggressively buying and supporting the market because of our strong exports to China.”
Soybean prices aren’t likely to exceed the all-time high of $16.60, “which would be a $4 rally from here,” Hoops said. “You would have to have an acreage battle or South American weather problems to push into that area. At some point, China will slow down their buying from the United States and shift to South America, if they have a good crop. I would look for price appreciation during the winter of $1 to $2.”
Corn prices will be a follower of soybeans, Hoops noted. “USDA lowered corn yields by 1.5 bushels, which is what the trade was already factoring in. The production forecast is12.54 billion bushels and ending stocks have shrunk to 827 million bushels. That’s significant. Anytime you get corn ending stocks under 900 million bushels, the trade will recognize that stocks will have to be rationed.”
Hoops said this is one reason why USDA lowered corn exports by 50 million bushels. “They’ve noticed that since the last report, exports have slowed down considerably. We have not been able to maintain our export strength at these higher prices.”
Hoops said that corn production is likely to get even smaller. “If we look back at history, USDA’s November corn production forecast has fallen short of trade expectations 6 out of the last 8 years. There’ll be no exception this year. The trade will assume that going into the final report in January, we’re going to see another yield reduction in corn, maybe as much as 2 bushels to 3 bushels.”
Basis in corn should start to tighten in the winter months, according to Hoops. “Producers will be hesitant to sell until we get past this final production report. I don’t think we’ll see much selling between now and the January report, other than a trickle of sales for cash purposes.”
Corn prices, “could make a run at the $6.25 mark,” Hoops said. “That’s a major resistance point we’ve saw when we tried to rally in the spring of 2008. We could move higher if we get a weather problem. But demand is starting to slow for corn. If we get into the $6.25 to $6.50 area, farmers are going to want to sell, especially when we get the calendar turned to January.”
Wheat ending stocks, at 848 million bushels is down only 5 million bushels from last month, noted Hoops. “Wheat has been following the crop condition ratings and should continue to do that through November. If we remain dry, I would look for deterioration in the crop. When we exit dormancy, if this crop is in poor condition, farmers are going to consider destroying the wheat and planting the ground to corn and soybeans.”
Hoops says the corn and soybean markets “need to attract at least 9 million acres through the winter months. It’s very likely that some of that is going to come out of winter wheat, which means wheat prices are going to have to rally to provide some incentive for farmers not tearing up their wheat crops.”