March madness for corn, soy
Last week, we suffered through significant downside weekly reversals in the charts of crude oil, gold, and silver. The downside weekly reversals were probably most impressive in the metals, with huge selling pressure after running to recent highs. That could portend some trouble for the commodities going forward into spring.
But in emphatic ways, soybeans have gone the other direction recently, gaining $2.25 since a weekly upside reversal was formed on Dec. 16, 2011.
That huge rally in just 10 weeks certainly was due to the SAM production problem in 2012, as the hot/dry weather in Argentina and Brazil during January and late December caused huge production problems for southern Brazil and Argentina. Most private analysts are cutting production numbers again for Brazil by hefty amounts (and also Paraguay). But for the first time, Informa, the private analyst firm, actually raised their Argentine forecast as late rains in February and early March have resuscitated the crop there, helping to alleviate drought conditions.
The key question now is, has the market rallied enough given the production problems in SAM?
We may find out given the USDA March report on Friday, where SAM production forecasts are likely to be cut further (and perhaps to their final resulting number). Can the market continue to rise on the SAM production problem?
Or is a $2.25/bushel rise in soybean prices enough for now? These are the key questions that may be answered on Friday by the government report.
While soybeans have rallied, corn prices have been relatively stagnant during this time. This has increased the soybean/corn price ratio now to the point that it should attract acres away from corn and to soybeans, as we now have a 2.3 ratio (or at least it won't attract acres into corn anymore). A ratio of 2 or less was present for most of the fall and early winter, but now after a $2.25 rally in nearby soybean futures, that ratio is back to a more normal 2.3 ratio. That means that producers have less incentive to plant corn over soybeans for the US 2012 production season. That could mean additional acres will be attracted back to soybeans (or simply not switched to corn).
SAM producers are looking to add a second crop this year in many areas, with the spring planted corn likely to see record large acreage this year as well. That could also alleviate some of the upward price pressure on commodities.