A bit of wet weather and edgy commodity funds contributed to a major break in soybean prices in late June. But don't count higher soybean prices out. There could still be good pricing opportunities in the months to come based on a continuing drought in parts of the United States.
“Weather continues to be the major news here,” said Jerry Gidel, president, Midland Research, Inc., speaking at a Chicago Board of Trade press briefing on USDA's June 30 acreage survey. “We had a major break in the heat trend in the eastern Corn Belt and that has broken prices substantially.”
He said commodity funds “have beaten the living tar out of beans the first two days of this week (June 27-28). But we have a growing season ahead for both corn and beans. Asian soybean rust is a dog that has hung around the curb too many times. And we are seeing problems with aphids starting to occur in Nebraska.”
Gidel said moderate drought continues to persist in a large band from northeastern Texas up through southwestern Michigan. This is causing uncertainty about production and implies substantial volatility ahead. “I don't know if we have $8 soybeans in our sights yet, but the potential to get back to recent highs is not out of the question.
“Longer term, the downside risk is from favorable August weather. We could see prices at $5.50 or less. But we have a tight stocks situation. We cannot afford an average yield below 39 bushels. Crush demand has been fantastic. Prices have gone up for meal but haven't run away yet.”
While the corn market is battling a very big carryover from last year's tremendous U.S. crop, USDA's acreage estimate “has a bit of a friendly tone for prices,” according to Gidel. “The trade was looking for 82.25 million acres and it came in at 81.6 million acres. I would definitely encourage producers to take advantage of rallies to market the rest of their old crop corn, and have a pretty substantial amount of the new crop corn covered.”
Quarterly stocks and acreage numbers are also friendly for corn, noted Joe Victor, vice president, marketing, Allendale, Inc. “With third quarter stocks of 4.32 billion bushels, we're estimating fourth quarter usage at 1.97 billion bushels, which implies 2.35 billion bushels in ending stocks for old crop corn.
For new crop, if estimated corn acres are realized, a trend yield of 145.4 bushels per acre would produce a 10.8 billion bushel crop and ending stocks of 2.3 billion bushels.
While U.S. ethanol use “is probably overstated by 70 million to 75 million bushels, we have good strong weekly export sales and shipments (June 30), Gidel said. “Don't be surprised to see Asian buyers start to stock up on corn, primarily because we have a fantastic price and oceanic freight costs at $45 a ton is a very good buy.”
On the other hand, “we could lose business to South Africa, which had a 11.88 billion-bushel crop in 2004. With their carry-in, they might not even have to plant a crop next year to meet demand.”
Victor says fourth quarter U.S. soybean usage of 400 million bushels implies ending stocks of 300 million bushels for old crop beans. But usage could go as high as 429 million bushels, which would push ending stocks to 271 million bushels. “I think we'll be close to it. There is still very good interest in U.S. soybeans.”
Victor noted that the United States used 681 million bushels of soybeans in the most recent quarter, “the second best usage we've had dating back to 1972. We used 696 million bushels in 2000-01. We've been producing big crops, but the good thing is we've had good demand.”
For new crop soybeans, 73.3 million planted acres and a trend yield of 40.5 bushels per acre “imply production of 2.88 billion bushels and ending stocks of 279 million bushels. If we get strapped going into mid-July and August and we don't get pod fill, we could see a 35.4 bushel average yield, production of 2.51 billion bushels and ending stocks of 127 million bushels.”
Victor believes there will be good pricing opportunities during July and August for soybeans.
“We know that last year the Delta region had more bean acreage than normal and it was good to feed the pipeline quickly and get it to the Gulf. One thing to consider is that this year, the drought area is in key areas along the distribution channel. Watch basis and futures, they could rally significantly by September.”
Watch the weather, too, especially in August, said Gidel. “It's the key feature for soybeans. We could have a very volatile situation in soybeans before the summer is over. But we have to get through the next two weeks. We have to make the crop before we burn it up in August.”