Could soybeans go a dollar higher? Have we seen the highs in corn? These question will likely be answered in the next 30 days as the western Grain Belt continues to lead a weather market for corn and as soybean supplies tighten, according to market analysts.
At the core of the buoyancy in both crops is steady growth in demand. “We know demand (for soybeans) is good into the Asian market,” said Tim Hannagan, grain analyst with Alaron Trading. “The Chinese have mandated more protein into the diet. So we look for the meal in the beans to continue to travel into the Asian market.”
The demand is leading to a tightening of stocks in both old crop supplies and projected new crop supplies for soybeans.
According to USDA's World Agricultural Supply and Demand Estimates released July 11, estimated ending stocks for new crop soybeans are 230 million bushels, down from last month's estimate of 265 million bushels. USDA also lowered its estimate of ending stocks for old crop soybeans from 240 million bushels last month to 210 million bushels.
“We were looking for tight numbers in soybeans,” said Don Roose, president and CEO, U.S. Commodities Inc., said of the WASDE report. “And we received tight numbers. But we're going to watch export sales. We're starting to price ourselves out of the market just a little bit.”
More volatility could be ahead in the markets because USDA acreage and production numbers for corn and soybeans remain higher than most trade estimates. “You have to wonder if the yield and the acres are correct,” Roose said, “particularly with the weather forecast and the weather that we've had.”
“The western Grain Belt is radiating with heat from Iowa, Nebraska, Missouri,” Hannagan said. “We know this drought and heat has been going on two years. Everything is building up to losing significant yields in that western Grain Belt.”
The potential for corn ending stocks slipping below 1 billion bushels could keep markets lively even though USDA estimate of ending stocks for new crop corn of 1.47 billion bushels is up from last month's estimate of 1.30 billion bushels.
“Any kind of uneven growing weather, particularly what we've seen in the western plains of Iowa, Nebraska and Kansas could easily trim 350 million to 400 million bushels off this crop,” Hannagan said. “The weather for the next 35 days (to mid-August) is the yield development stage.”
Tightness in old crop soybeans is pushing near-month prices higher, both analysts noted. “We have a tight old crop situation with soybeans and a tight new crop situation also. And I think we're building some risk premium into the market,” Roose said.
“But once our crop is established and Brazil's crop gets off to a start, I believe the inverses start to alleviate.”
Hannagan agreed. “Cash prices for beans have to be firmer. We have to get through the pod-setting days. We probably have several more weeks of relatively drier-than-normal conditions. And this has farmers holding tight. They don't want to sell beans if they think the rumors are true that could give them another buck and a half or two dollars.”
The analyst noted that unless the export pace comes to a dead halt, soybeans are going to remain tight “until we hit harvest and get some new crop applied against it. Corn supplies are adequate. Producers want to move stocks on any rallies. There is a fear that the $2.54 on December corn could be the high-water mark without some big weather problems.”
Soybean prices could climb until harvest begins on the Brazilian crop, which was estimated at 47 million tons by USDA.
“So we have until then to enjoy that July and August contract strength,” Hannagan said. “We're already seeing the Asians backing away from our soybeans and getting ready to buy the Brazilian crop. So we have a little weather premium coming, then prices will go lower into our harvest.
Brazil's threat is not going away, according to Hannagan. “They're going to continue to clear the land and produce. In three years, the United States will be the second-largest producer and exporter of soybeans in the world.”