Farm Futures - Weekly Market Recap
Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
April 18, 2014
Bob Burgdorfer, Farm Futures Senior Editor, contributed to this report.
A lot of folks in agriculture see free markets and good old-fashioned supply and demand as the cure for what ails just about everything from world peace to the common cold. But when it comes to soybeans this year, "the invisible hand of the marketplace" could bring a slap in the face rather than a pat on the back.
Soybean stocks are tight and getting tighter. The U.S. won't run out of soybeans, but keeping the industry running until new crop supplies hit the pipeline won't be neat or easy. High prices are needed to ration demand, encourage imports and accelerate the arrival of early harvested 2014 soybeans.
Rationing is already underway. End users are turning to alternatives that complete with the products from the soybean crush, driving up prices for palm oil and DDGS. And foreign buyers, mostly Chinese traders, who bought soybeans when prices were lower, are taking gains on their purchases, reselling the cargoes to other buyers, or rolling purchases to new crop at a lower net price.
Most of these transactions are a normal part of the business of beans. But another trend emerged recently, when Chinese importers started defaulting on purchases. This hasn't happened in a while; when it did a decade ago, international grain companies took steps to make sure it wouldn't be a problem again. This time the defaults stem not only from very weak crush margins in China. But some of the companies used soybeans to secure cheap loans used for other businesses before actually taking delivery. A government crackdown on the country's loose banking sector left these buyers unable to pay for their purchases. Defaults can happen in the U.S. too, and it usually puts the offender out of business.
Outstanding sales and soybeans already shipped total 60 million bushels more than USDA's current forecast for the 2013 crop year – an amount that would cut already tight carryout in half. But not all those beans will be exported by Aug. 31, the end of the marketing year. Each year some purchases are rolled to delivery in the next marketing year. The total varies, but on average it runs around 70 million bushels.
The ability of farmers to supply 2014 soybeans before Sept. 1, the official start of the next marketing year, is less certain. Some years, almost the entire U.S. crop is dropping leaves by the end of August. Other times less than 10% is. The later the U.S. crop gets planted, more unlikely the early harvest is.
The final factor, imports, is also underway. Usually, imports come across the border from Canada. But supplies have begun arriving from Brazil this year. USDA projects imports will reach a record 65 million bushels, nearly double their previous high in the wake of the 2012 drought. Only 20 million bushels were brought in during the first six months of the marketing year, so spring and summer arrivals must swell. The most soybeans imported into the U.S. in a month came last July, around 12 million bushels. So U.S. ports will have to be especially busy to meet USDA's goal.
Expect a very nervous soybean market this summer, as this slow drama plays out. Supply and demand should put on quite a show.
Chicago corn prices trended lower the first half of April and finished the week near $5 per bushel as long-term weather forecasts favored spring planting in much of the Midwest. Corn planting got off to a slow start early this month, but should pick up speed in the weeks ahead.
Corn exports have been active, with crop year sales close to meeting USDA's forecast of 1.75 billion bushels.
Soybean markets were active, posting solid gains recently as an active domestic crush offset more talk of China defaulting on soybean purchases.
The surge in domestic use coupled with this year's better-than-expected exports have put more focus on the low level of U.S. soybean supplies. Higher prices for soybeans and soymeal will either slow usage or prompt soybean imports.
Chicago May soybeans finished the week over $15 a bushel with new-crop November near $12.40.
Winter wheat markets were pushed higher by drought in the Plains and more recently by a frost there in mid-April. The frost damage has yet to be fully assessed but will likely be of interest to crop scouts who tour that area later this spring.
Soft red winter wheat recently traded near $7 per bushel, while hard red winter was near $7.60.