Soybean rally

01/23/18 — Soybeans have continued the rally from report day on Jan. 12 when USDA updated the supply and demand numbers as well as winter wheat planted acreage. Recall that soybeans had an upside daily reversal that day, with the friendly news that 2017 US soybean yields were lowered to 49.1 bu/acre from 49.5 bu, and that winter wheat planted acreage was larger (which leaves less acreage possible to be planted to soybeans). The market took both of these numbers as being bullish, and the market rallied substantially that day.

That was in spite of a cut in exports of a large 65 mb, and a hike in ending stocks to 470 mb, up 25 mb from December as the export cut more than compensated for the reduced crop size. And this was also despite a hike in Brazilian production of 2 mmt, offset somewhat by a smaller cut of 1 mmt in Argentine production. Yet the market rallied anyway, a good sign in what has been a rather uneventful winter thus far. Soybean futures have rallied about 40c since Jan. 12, a good rally in an otherwise stagnant market this month.

Wheat and corn have done almost nothing recently, not only in the past few weeks, but you could even extend that to the past few months, as well. There just isn’t a lot happening in the wheat and corn market right now. US ending stocks are comfortable for both at nearly 2.5 billion bushels of corn and almost 1 billion bushels of wheat. This is definitely comfortable as far as stocks levels, and it means the hill is pretty steep that we will need to climb with a crop threat in 2018 to generate some price movement.

While the numbers all look rather dismal right now, the positive is that we are slowly inching closer to the northern hemisphere growing season, when the majority of the world’s production will be at risk. That is when we will be likely to get a major change from the currently comfortable supply situation, and if it does occur, means the increased potential for price movement.

Already we are witnessing a relatively dry period for winter wheat producers and HRS wheat producers, as there has been very little snow falling this winter so far in these regions. Temps are also warming to above normal for much of the US after a relatively bitter cold period around the first part of the year. Whether any winter wheat was damaged by cold weather still remains to be seen.

As we approach the production season which will start to be impacted by weather around April 1, we will start to remember all the production risks that can come with a new season (late or prevented planting possibilities, too dry, too wet, too cold, too warm, etc).

Progressive Ag is in particular interested in the wheat market, which has almost become a forgotten market in the US. We’ve lost acreage to other crops for many years in a row, with only about 1% smaller winter wheat acreage this year. But that followed 2 years in a row of nearly 10% cuts in acreage, so we now plant the smallest acreage in many, many years. We note that ending stocks were cut last year about 200 mb with the smaller acreage, and prices hardly even noted the decline.

Also, both winter and spring wheat areas have potential droughts in both regions this winter, with spring wheat drought lingering from last year when it significantly affected western HRS wheat region yields. Winter wheat regions are currently on the dry side, with dry weather forecast to continue in the next weeks. But if you are going to suffer dry weather, the best time to endure that is in winter, when the crop isn’t even growing. As we move into spring, that warm/dry weather pattern will need to change, though, or it could start to have major impacts on yields in 2018.

For now, equilibrium seems to be the reality in markets, with prices relatively low and stocks relatively high. Nothing is likely to change that equilibrium this winter, as South America seems to have a decent crop (with Brazil above average, and Argentina below average). Demand has been relatively slow for US exports, but it seems we are already starting to build that into our supply/demand tables, too.

But as spring approaches, a new set of dynamics can emerge, and this market might go from one of “like watching paint dry”, to the speed of light by sometime late this summer.