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Beans in the teens???

Agriculture.com Staff 02/12/2016 @ 2:29pm

We are now within striking distance of "Beans in the teens," that often wished but never before granted request from producers and speculators across the country. Soybeans have never before traded in the teens, with the June 1973 high around $12.80 holding for almost 25 years to this point. However, we are now within one more trading day (like today) away from $13 beans in the July contract. Although we might encounter some resistance at previous highs, it almost seems inevitable that we'll penetrate that level given the enthusiasm for commodities today.

While that used to create a huge amount of excitement on the CBOT, based on what we've seen thus far in 2007, it really wouldn't be out of line with anything else we have experienced. After all, we've seen wheat in the $10+ region, when prior to that $7.40 wheat was about as high as we've gone. Corn has rallied also to high levels, although we still have not reached into the 1996 highs (which were quite a bit higher than previous corn highs). But given what crude oil had accomplished in 2006, and then repeated by running to new highs in 2007, it is now becoming quite apparent that commodities are the darling child of the last half of this decade -- not only to futures traders, but also to Wall Street types.

Farmers, initially excited by the huge spurt higher in prices, are now beginning to realize that something indeed is new in commodities, and yes, in fact the entire economic framework they are dealing with. While initially the excitement came from an expectation of huge profits at current price levels, the rapid pace of input cost inflation is beginning to dim the excitement. Farmers now fear a collapse in prices will leave them holding huge losses, with some university types hyping up that possibility and the risks it brings to producers. "Sell at a profit" is a battle cry yet for some, but it is not so simple to calculate that profit given the fast changing cost structures today. Unless costs are locked in, even the most perfect profit calculation today can become tomorrow's losses! That becomes a scary environment to deal with. Although rapid price rises are always welcome, some reassurance on the cost side would make it much more enjoyable.

Uncertainty usually creates opportunity, and so far the most opportune players have been those who have locked in input costs, but let the product price side ride as long as possible. Generally considered too risky, in this inflationary environment this so far has seen huge reward!!! The product/output price side continues to see rapid inflation, and its not just one commodity now, but pretty much every major commodity has risen sharply in the past 12 months. Minor crops are either just slightly behind the major crop moves, or have already been touched by 2007 acreage/demand pictures. There are only a few rare commodities left relatively untouched by the recent rallies (potatoes and sugarbeets to name a few).

While costs are rising quickly, Pro Ag doubts the ability of markets to drop sharply in the near term back to pre-1996 levels. With wheat production costs now approaching $6/bushel in the U.S. and stocks tight both world wide and in the U.S., how can we drop prices back to <$5 anytime soon??? The same can be said about corn/soybeans. We just don't see how that can happen barring any tremendous world economic shock. It wouldn't be much of an incentive to producers to keep building stocks from current dangerously low levels to drop prices now below $6 costs. In fact, Pro Ag seriously doubts the ability of the market to retrace all of the recent high price move.

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