Old-crop soybean contracts stall, new-crop prices climb

A potential powderkeg is possible this spring, summer, analyst says.

New-crop corn and soybean futures continue to rally, running to new highs even while the old-crop stalls out at current levels.  

New-crop prices got a boost from USDA’s Ag Outlook which basically showed corn/soy ending stocks would remain about the same as we have today – extremely tight.  

And wheat will get a whole lot tighter as corn/soy steals acres away from wheat.  USDA upping planted acreage of wheat to 45 million acres (up 0.7 ma), last week, corn to 92 million (up 1 million), and soybeans to 90 million (up 6.9 million).  

Carryout numbers for 21-22 were projected at 145 mb soys, 1.552 billion corn, and 698 mb wheat. Essentially, just as tight for corn and soys (almost), and tighter for wheat even with 8.6 million more total cropland acres planted.  

Realistically, the USDA’s 2021 carryout figures for soys is probably 30 to 50 mb too high and 400 mb high in corn – that reduces carryout numbers in both years to pipeline supplies. Add a little weather in, and we have a potential powderkeg this spring/summer.

When one looks at rainfall amounts since November in SAM, a certain amount of irreversible damage was likely done with only 50% to 75% of normal rainfall for much of Brazil from mid-November to today. Recall this is the primary rainfall season for Brazil, with at least half of the year’s rainfall falling in that three-month period. Since it is the peak rainfall period, no amount of above-average precip from mid-Feb forward can make up for that lack of rainfall.  

So, Brazil will have a below-average soybean crop. The only question is, how much? Hope springs eternal for the second-crop corn. So, with a good start of cool/wet weather the last 30 days, it might still have a chance to produce a normal crop if that weather continues into summer; but the odds are stacked heavily against it, given the crop is planted two to three weeks late, and on average, rainfall turns to almost nothing in summer months.  

Pro Ag predicts that Brazil crop production estimates need to be lowered at least 3 to 5 mmt due to the lack of precip; you just can’t produce near a normal crop on 75% or less of normal growing season precip – especially in their light soils.   

Weather forecasts continue to suggest some difficulties for Argentina, with below-normal rainfall the next seven days and above-normal temps.  

Rainfall improves somewhat in the eight- to 14-day forecast, but there is stress in Argentina. Brazil is a little better with below-normal temps and normal precip.  But, Brazil is also harvesting. So, warm/dry weather is still preferred in the north to aid harvest, which is about 15% complete.  

Yields are disappointing in Matto Grasso, with quality concerns there as well as Parana.  

Chinese soybeans, rapeseed, and palm oil all made new highs today (2/23), as did U.S. new-crop corn and soy futures yesterday and overnight. Matif March corn futures also made new highs for the sixth straight day, with talk of a squeeze on the March contract.  

Wheat futures may be down on better-than-expected wheat ratings given the extreme cold recently suffered. However, weekly crop reports in Kansas, Oklahoma, and Texas talk about the need to assess the damage, and that it would begin in the coming week. 

Note that Texas wheat was reported 22% headed in the weekly report vs. 5% average; that cold weather could not have been good for headed wheat. Kansas ratings are 26% poor/very poor and only 40% G/E; Oklahoma is 14% P/VP and 
48% G/E; Texas is 31% P/VP and 30% G/E. Low temps in Oklahoma ranged from 12°F. to 21°F., and the average temp was below freezing across the board, with highs barely above freezing.  

Pro Ag is expecting another interesting week ahead, with this week finalizing the crop insurance prices in the U.S., and more importantly, setting the volatility rates that will be applied to set premium rates for the year. So this week’s trade is the most important of the whole month; if rates are higher, less of the ECO/SCO product will be sold (a product very similar to put options, but with a county yield trigger).


Conversely, if rates are lower, it will be more advantageous to buy your puts through SCO (which is 65% subsidized), or ECO (which is 44% subsidized), or both. SCO covers you with a 14% deductible (86% coverage), or for $4.55 corn would be $3.91 (compare to $3.90 Dec puts).  

For 90% ECO, its $4.095 (compare to $4.10 puts) and 95% ECO is $4.3221 (compare to $4.30 puts). Soys at $11.80 would be $10.15 (86% SCO), $10.62 (90% ECO), or $11.21 (95% ECO).  If you don’t understand this 
direct comparison, I’d highly recommend talking to one of our brokers.  

Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country.  See http://www.progressiveag.com for rankings and link to data from Top Producer Magazine and Agweb.com. 

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. 

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