Markets seen strong through 2009
If you think the latest USDA acreage report dimmed the long-term price outlook for corn and soybeans, think again, analysts say. For 2008 and 2009, the favorite marketing term, 'volatility', will remain popular.
At one point this year, there was chatter about the huge amount of corn acres creating a turnaround in a bullish market. In addition, with beans beginning their rally in July vs. early winter, that should encourage South America to plant much larger than expected bean acres this winter, thus making up for any world supply shortages. Thus, the picture for high corn and bean prices in 2008 looked bleak.
DEMAND DRIVES MARKET
Many analysts believe that until there is a slowdown in demand growth or a short crop, the long-term outlook for higher prices is intact.
John Roach, Roach Ag Marketing, Ltd, said in his daily newsletter on Friday that he has a long-term optimist outlook for grains.
"We must also look at the growth (world demand) for both food and fuel. Energy prices show no sign of getting cheaper and economic growth in China, India, and much of the world will bring increasing food demand," Roach said. Meanwhile, the demand for corn and soybeans is outweighing any oversupply arguments, analysts said.
For instance, the U.S. 2007 soybean carryout is estimated between 550-600 million bushels. However, with sharp declines in soybean acres this year, the 2008 carryout is expected to drop below 200 million bushels. The market gets real nervous with carryouts that have number one in front of them, one analyst said.
Because prices are moving higher ahead of the South American planting season, producers there are expected to increase soybean acres between 4%-8% over last year. U.S. bean producers are expected to harvest about 72 million tons of beans this fall while Argentina and Brazil raised 46.5 and 59 million tons, respectively.
Rich Balvanz, Ag Management Services, LLC, said South America producers better plant more soybeans, because the world is going to need them.
"I don't see how we can over produce corn or soybeans unless the biofuel market becomes so unviable that we don't need them," Balvanz said. "But, I see no signs of any country's alternative energy plans fading."
Balvanz added, "I see the need for expansion in the need for oilseeds, corn, and anything else we can make biofuels out of."
Balvanz said it's hard for the world and market analysts to get their arms around the idea that we can't look at these acreages like we used to.
"As long as the world producers have the flexibility to grow whatever is necessary, I see the annual flip-flops in production as common-place.
"If we need to produce a lot of corn one year, we'll produce a lot of corn, likewise with soybeans. As long as there is a fuel component, I see us increasing anything and everything," Balvanz said.
BACK TO BEANS
Jason Ward, North Star Commodity Investment Co., said the current higher market is already attracting U.S. producers back to soybeans for next year.