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Soybean futures soaring

Soybeans rallied to new recent highs, with corn and wheat also pushing up in the past week. Grains are supported by strong exports, with demand the last few months cutting into ending stocks levels of wheat, corn, and soybeans. Soybeans have a "W" formation on nearby charts, and now have broken to the upside of that formation, which makes it look like old-crop soybeans still have some life in them.  

While soybean prices are running higher on strong U.S. demand from exports, the South American weather remains mostly favorable for most crops in northern and central Brazil. Southern Brazil and Argentina have had crop stress at intermittent times over the past few months, but recently good rains have fallen in these previously dry areas - keeping crops from declining much in yield potential.  

The rainfall and warm temps ebb and flow back and forth among South American producers in the south, with Argentina and southern Brazil taking turns experiencing dry periods along with warm temperatures over the past few months. The amount of crop that has been damaged in the south is still up for debate, but thus far whatever losses southern areas have experienced seem to have been offset by improvements in northern Brazilian crops.  

It appears that old-crop soybeans are rallying to try to cause cancellations in old-crop soybean sales, as the U.S. has already sold more soybeans than we are projected to export in this marketing year. So the market appears to be rallying to try to get some of those sales cancelled. In fact, we'll need significant cancellations to avoid having a shortage of old-crop soybeans on hand at the end of this year. That could take some significant price movement, though, since the Chinese so far appear reluctant to make those cancellations.  

While soybean prices have a reason to rally to slow U.S. export sales and shipments, wheat and corn prices are also rising recently, with corn running to nearly 45c gains since the January final report, to wheat gaining back about 60c to the $6 March area. These are all nice rallies, and the demand side for these two grains is also helping to push prices higher. Corn demand from exports has recently cut into ending stocks estimates, and that is a positive affecting these two markets.  

So we currently have an improvement in price outlook for grains as we move into the late-spring time period. This is typically an improving period of time for grains, as we typically rally into spring to provide incentives for farmer to plant a little more acreage.  Soybeans especially need to attract acreage as the long-term 10-year forecast for soybeans was released last week, and it indicated only a 1.5 million acreage rise in 2014 for soybeans, with ending stocks projected at only 203 mb (and we've already cut that by 20 mb due to stronger-than-expected exports for 2013/14). So we'll need additional soybean acreage to survive any crop scares next summer, so the job of the market is to attract more acres into spring to soybeans.  

Meanwhile, strong demand for corn and wheat are also making a play for available grain supplies. This is a nice situation for grains to be in! Unfortunately, the long-term forecast for corn and wheat is not nearly as optimistic as it is for soybeans, as USDA's 10-year forecast indicated both corn and wheat will be below the target price over the next five years (target prices are now $3.70 for corn and $5.50 for wheat under the new farm bill). Unlike soybeans, this is not an optimistic forecast.  

But while the long-term projections are negative, currently we have a positive situation for grains. For producers, that means that holding off on sales has recently been working, as prices keep drifting higher and adding value to inventories.  


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