The soybean market may have some room to rise — at least until it is assured there are enough soybean acres in 2008 to meet demand, according to an analyst speaking at the Minneapolis Grain Exchange November press briefing on USDA's Nov. 10 crop production report.
“Each month our carryout keeps dropping, demand is going to remain strong, and I think soybeans are headed to $11-plus,” said Peter Georgantones, with Investment Trading Services. “The only monkey wrench would be if shipping costs got too expensive and we couldn't export. Something like that would result in a healthy correction.”
Georgantones noted that in 2002, “we had beans top out at $10.46 on the January contract. We had a carryout of about 125 million bushels. Now we just passed $10.46 and we have a carryout of 210 million bushels and a monster South American crop, with Brazil at 62 million tons and Argentina at 109 million tons.”
In its November report, USDA pegged soybean ending stocks at 210 million bushels, 5 million bushels down from the previous month. “That number is very supportive. The bean market is really going to have to do its part to make sure we increase acreage here.”
Georgantones noted that South America's soybean crop is off to a very good start. “It was a little dry early on, but they have turned the corner in the last week. They've had good rains down there.”
In its Nov. 10 estimates, USDA pegged U.S. soybean production at 2.94 billion bushels and corn production at 13.2 billion bushels. Interestingly, USDA numbers are close to figures released by Lansworth, Inc., using geospatial data collected by satellites. The Lansworth estimate, released last week, pegged 2007 U.S. corn production at 13.15 billion bushels and soybean production at 2.59 billion bushels.
While soybeans appear headed higher, the high is probably already in for old crop wheat prices, according to Georgantones. “It's going to be hard for the market to hold at $8 or $9. New crop wheat is a different animal because we have dry areas in Colorado, western Kansas, western Oklahoma and western Texas that produce a large amount of our wheat. But wheat's in trouble right now. We need some demand and we're just not getting it.”
Another issue that could come into play is rising freight costs, noted Georgantones. “It could really affect export sales this coming year.
“The low value of the dollar is helping some exports, and that may offset some of the freight costs. It will help us get a share of the business.”
Markets are likely to continue to be volatile, according to Georgantones. “$40 billion to $50 billion in new fund money is coming in, and they're looking where to put it.
“The game has changed. Now the concern is prices being high enough to find enough acres.”