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Brighter 2017 Price Outlook for Soybeans?

Acreage up but yield estimates will be dropped to trendline.

Much like last year at this time, the grain markets have similar levels of large stocks to consider after harvesting record large yields for wheat, corn, and soybeans.  

Projected ending stocks are actually larger than last year at this time, but prices are still higher for the new crop than last year at this time. In fact, as I write this on February 13, corn is 14¢ higher than last year’s February price, soybeans are about $1.45 higher, and HRS wheat is about 60¢ higher.   That is a nice change to see prices higher, and perhaps indicates that the market is already anticipating something new happening in 2017, and is possibly done trading the large yields and stocks of 2016.  

Grains are trending higher as we move toward spring, when we enter a new crop year in 2017 and we put the large yields and stocks of last year more and more into our rear-view mirror.  In 2017, we won’t be projecting record yields to start out the year. Instead, trend yields are the numbers we will be using, and soybean trend yields are about 47 bushels per acre vs. last year’s 52.1-bushel-per-acre yield – almost 10% less. 

Even with larger acreage planted (perhaps 4 to 6 million more), we still will be projecting less production than 2016 as we start the season. With demand growing every year and China’s seemingly insatiable appetite for U.S. soybeans, we could have a brighter outlook than many realize.

Another serious question the market needs to answer for the 2016-17 crop year (which also affects the 2017-18 year) is the size of demand. The question posed for 2016-17 is, “Will the Chinese simply buy whatever the U.S. supply of soybeans can provide?” For the last four years, we would start out the year with projected ending stocks similar to current projections (420 mb), and then by the end of the year, after monthly hikes in export projections, we ended up with less than 200 mb of carryout. If that happens again this year, we will have a large demand base to start the 2017 year with. 

That could make for some interesting developments! Add in a little weather premium in the spring and the risk of crop yields actually falling below trend, and producers could see price opportunities come again this spring and summer that none of the prognosticators expected this winter, especially following our 2016 large yields of the three major crops.

Corn acreage is expected to drop for 2017, perhaps 4 to 6 million acres, and that along with trend yields of around 170 bushels rather than last year’s 174.6 bushels per acre will improve the fundamentals of the corn market. Already, winter wheat planted acreage was reported in January at about 10% smaller than last year (for the second year in a row), as the U.S. continues to lower wheat acreage. 

We need to reduce wheat acreage, too, as stocks are at about 50% of use, which is a cumbersome level. But the new crop year will provide changes, and lower planted acreage is a step in the right direction. Remember that 2016 was an ideal planting year, with little prevented planting. So it’s likely we will lose 2 to 4 million acres just to adverse planting weather in spring somewhere in the U.S. (which is probably a more normal amount, not like 2016).

Pro Ag is optimistic we will see some better pricing opportunities, probably after farmers start planting in spring and maybe even deep into summer.  That will likely be the time we’ll get
aggressive with sales in 2017.    

For now, producers seem to be enjoying watching grain prices go higher for the last few months. It has been a slow grind higher, but higher it has gone!  It’s a lot more fun when your inventories are increasing in value than decreasing in value like they did most of the summer. We just need to catch some sales sometime when this current uptrend is ending.

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Ray Grabanski is President of Progressive Ag Marketing, Inc., the top
Ranked marketing firm in the country the past 8 years.  See
http://www.progressiveag.com for rankings and link to data from Top
Producer Magazine and Agweb.com.

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