Acreage Switch To Soybeans Is On, Analyst Says

Market pressure signaling switch

The bean market closed in the red today after trading higher in the overnight session. This was the first back to back weaker close in the beans since April 9th. Disappointing export sales spread unwinding as well as macro weakness all attributed to the markets weakness.

Soybean sales came in at 219,342 metric tonnes (212,399 old + 6,943 new). That was a clear miss compared with the 675,000 - 950,000 expectation. It looks particularly negative after the USDA raised their export goal earlier in the week. Sales will need to run 30% over normal through August to hit USDA's current 1.740 billion bushel mark.

As we mentioned yesterday, we are anticipating that up to two million corn acres will be shifting to beans after the run-up of the bean corn ratio. It looks like others are starting to think the same as while the beans were under pressure the corn market rallied. This is what should happen if acres are shifting from corn to beans.

The size of the Argentina crop continues to be debated. Yesterday afternoon the Rosario Grains Exchange lowered its estimate of the coming soybean crop from 59 million tonnes to 55. This is a little lower than USDA's guess on Tuesday, when they dropped the crop form 59 mt to 56.5. The Agriculture Ministry suggested 1.2 million hectares would not be harvested due to excess rains.

Weather will dominate the trade’s attention over the next few months. If the wet conditions continue we could see even more aces shift away from corn to beans. Once the crop is planted the trades attention will shift to the summers weather.

The summer’s weather continues to be spun friendly as most forecasters continue to hype the shift from EL Niño to la Nina. The monthly update from the Climate Prediction Center showed improving chances for a transition to La Nina this year. They now see a 52% chance of it in the June - August period, where yields are determined, and peaking at a 76% chance for the October -December period.

The question for grain markets is not really if La Nina comes this year it is when. If we reach La Nina by late July and August it could be a problem as this is the time when bean yields are determined. In the near term we look for continued wild day to day price swings until trade gets a better handle of potential acreage adjustments as well as the summer weather.

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