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Soybeans rebound to sell target
For a long time, Pro Ag has targeted $14 harvest lows for soybeans (ever since September when beans traded $17.50 or higher). So, when they hit that level in mid-November, we removed our hedges for 2012.
However, we have bounced back this week to the $14.50 level on the tails of corn, which has recovered 50c of value immediately after the announcement of the nonwaiver of the RFS by the EPA.
That announcement (good for grain producers, bad for livestock producers) had to push corn higher as in a year when production dropped an astounding 25% from trend. Still, EPA didn't waive the RFS. If it won't be waived this year, it likely won't be waived in the next 50 years (as this was a once in a 50 year drought)!
So, corn prices rocketed higher following the news (like they should have), as tight stocks will be even tighter with ethanol continuing to grind away corn supplies. Soybean prices naturally had to follow corn higher, although with good SAM weather they didn't participate even at the 2 to 1 ratio (typically a 2.3 ratio). So here we are, with corn prices at a soybean/corn price ratio of 1.9 or smaller, historically low
relative to normal.
With soybean prices rising to $14.50, that was our target to start selling/hedging soybean prices again, and we have hit that target. But, perhaps instead of selling soybeans at a historically bad ratio to corn, perhaps it's time to short the corn market instead? Especially, with corn export demand absolutely pathetic. If world producers are not interested in using US corn at current price levels relative to other
grains, why are US producers using it? Or are they?
We don't actually get corn use numbers domestically except for livestock feed residual calculations every 3 months (with stocks reports). We do know for certain that world importers don't want anything to do with corn at current prices. Do they know something that we don't?
While there are some market participants that have been suggesting that crop problems in SAM are to get the credit for the soybean price rally, in Pro Ag's eyes the SAM crop weather stills seems relatively favorable.
Sure, today there's a bit wet forecast (but warm) for Argentina, and perhaps a bit dry for parts of southern Brazil, but overall the weather is varying from week to week enough that it should allow the shamrock to fall in different locations for rainfall. In fact, it looks to shift in today's forecast from the next seven days to a different location in days 8-14 for the wetness. A 'floating shamrock' for rainfall that spreads a little out all over is usually a bearish sign for prices, as its ideal for production. Yes, rain is a lot like manure - it's not worth much unless it's spread out evenly across the land!
Pro Ag sees no reason to get bullish soybeans or corn now - not after the bullish news of the RFS nonwaiver may be in the market. From here, corn prices could drift more than any other, as long as corn use in the US is as pathetic as it is around the rest of the world. If the pace of US corn exports is any indication of the demand for corn by the world's livestock producers, the corn market might be in a heap of trouble this winter! And with ideal weather in SAM, at what is becoming a more important time of development, soybeans may not be far behind.
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