Content ID

255883

Analyst: Crop Markets Face New Uncertainty

February has turned out to be a much slower time for grains, with soybean prices drifting lower while wheat and corn prices tread water. Everyone seems to know that soybean prices are heading lower now, and we note that farmers are much more aggressively sold both old-crop and new-crop soybeans than either corn or wheat. Soybean prices have been decent, while corn and wheat prices lag considerably — especially when you consider the weak basis of both these commodities.  

The only problem with the thought that everyone knows soybean prices are heading lower is that usually the crowd is not right. Instead, the contrarian theory is that the majority is usually wrong! So what reasons could cause soybeans to go higher from here?

The number one way soybeans could run higher is if China continues to import U.S. soybeans at a torrid pace. Essentially, the past few years they imported more than projected, and we ended up with a 200-mb or lower carryout every year in spite of above-trend yields. This year we had a record-shattering yield, breaking the previous record by nearly 10% in soybeans. Can China import all the U.S. soybean production in spite of this large yield? If so, it is a commentary on how large Chinese demand can actually be.

So if we go into next year with just a 200-mb carryout instead of 420 mb, then we must project a trend yield of 47 to 48 bushels per acre for 2017, much smaller than 2016. Even with a 4.6-million-acre expansion in soybean acres (like USDA projected at the Ag Outlook Conference last week), we still would have smaller total production than 2016. What if soybean demand expanded again in 2017 as it has for many years? We could get a short stocks situation in soybeans. Then add the uncertainty of weather and the possibility of a below-trend yield, and all of a sudden the comfortable supply situation many think we have today is wiped out. 

Pro Ag notes that new-crop 2017 soybean sales are so far pretty aggressive by farmers, and yet 2017 soybean prices remain above $10, absorbing the selling so far. Perhaps there is more support in new-crop soybeans than we realize? In fact, today is the final day for setting insurance prices for grain crops, and actually corn will probably end up 10¢ or more higher than last year, soybeans $1.30 or more higher, and HRS wheat 50¢ or more higher than 2016. If the outlook is so bad for crops based on current higher projected carryouts in 2016-17 vs. 2015-16, why are the average February prices higher than last year? 

Pro Ag has noticed that long-term charts are offering support for corn, soybeans, and wheat currently. We still are in uptrends on weekly charts for all three commodities, and have been since last September. Of course, it has been a slow and grinding uptrend with lots of setbacks along the way, but it is still an uptrend as we move toward spring.  

We said last week it’s likely that 2 to 4 million acres less will be planted in 2017 than 2016 if a normal spring planting season occurs. USDA in its Ag Outlook report said 3.6 million acres less would be planted of the eight major crops in 2017. They expect 88 million acres of soybeans, +4.6 million from last year (or +5.5%). USDA forecast 90 million acres of corn, 4 million less than last year (or about -4.3%). Wheat acreage was forecast at 46 million acres, down 3.8 million acres (or -8.3%). Price projections were $9.60 for soybeans, up 10¢ (or 1.1%). Corn prices were forecast at $3.50, 10¢ higher (or up 3%). Wheat prices were forecast at $4.30, up 45¢ (or +12%). None of these forecasts was considered a major surprise.  

Now, what will be a surprise are the changes we actually get in 2017 from the above USDA projections. How will demand be different than forecast? How will yields vary from trend yields? Will weather in the U.S. be favorable or unfavorable in summer 2017? How about the rest of the world?  Will export markets/U.S. demand be hurt by U.S. domestic policy, or is this just more anti-Trump talk? Can stocks/equities continue to rally into the stratosphere and new highs while commodity prices continue to flounder? These are the questions that will intrigue the market over the next six months or so, and of course have the biggest effect on markets.

We know we are starting from relatively cheap levels as we begin the 2017 year, but where do we go from here? Can it get any cheaper?

Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years. See http://www.progressiveag.com for rankings and link to data. 

This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. 

DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. 

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Progressive Ag Marketing believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that advice we give will result in profitable trades.

Read more about
Loading...