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Monday, May 23, 2016

Will Summer Pricing Opportunities Materialize for Corn & Soybeans

ifr160523–119
Will Summer Pricing Opportunities Materialize for Corn & Soybeans
Darrel Good, Agricultural Economist - University of Illinois

The very low price of corn and soybeans, and predictions for even lower prices later in the year, has farmers worried. They’re wondering, even hopeful, if a summer weather rally could offer up a pricing opportunity. Todd Gleason reports Darrel Good tries to answer this question in the May 23rd Weekly Outlook on the FarmDocDaily website.

There are a couple of factors the online article addresses…
4:03 radio
4:23 radio self contained

There are a couple of factors the online article addresses. The first is pretty simple. Boiled down Darrel Good says a supply problem in South America is a demand boost for North America, in this case for both corn and soybeans.

Good :13 …appears exports may exceed these higher projections.

Quote Summary - Weekly exports for both crops continue to be larger than needed to reach the USDA’s most recent export projections for the year. So, it appears exports may exceed these higher projections.

The second primary factor creating uncertainty in the commodity markets is planted acreage in the United States. The trade clearly has been concerned about total global soybean production this year, and has consequently rallied the price of soybeans in Chicago by $2.00 a bushel. This rally, along with corn planting delays in the eastern corn belt might be enough to cause a substantial acreage switch from corn to soybeans thinks Darrel Good, and if does happen, and there are fewer prevent plant acres than normal, it is possible total corn and soybean acreage in the June USDA report could be greater than the projection made in March.

Given all of this, summer weather in the Midwest will be the primary price driving factor concedes Good.

Good :45 …would be expected this summer.

Quote Summary - The largest uncertainty in both markets is the likely level of yields here in the U.S. this year. At this stage in the growing season there is little indication of how yields may deviate from trend values, estimated by USDA at 168 bushels for corn and 47.6 bushels for soybeans. We continue to believe there is a higher than normal risk of yields falling below trend value due to the history of warmer, drier summers following extremely warm winters. That risk may also be elevated by the rapidly fading El Nino event. If this assessment is correct, higher corn and soybean prices would be expected this summer.

…providing a better opportunity for pricing 2016 production. Here’s how Darrel Good sees this playing out. He says the risk of waiting for a summer price rally before aggressively pricing the 2016 crops is probably larger for soybeans than for corn for several reasons. First, soybean acreage is likely to exceed intentions so that production could still be large even with a modest shortfall in yields. Second, soybean yields may be less vulnerable to stressful summer weather than corn yields. Third, soybean prices have increased more than corn prices in recent weeks and are now at a relatively high level compared to corn prices. Fourth, November 2016 soybean futures are now trading near $10.40, above the spring price guarantee of $9.73 for crop revenue insurance. Fifth, with trend yields, current new crop soybean prices are high enough to generate positive returns to owner -operators, those with crop share rents, and those with modest cash rents.

In contrast, corn acreage may be less than intentions, yields are more vulnerable to adverse summer weather, recent price strength has been modest, and December 2016 futures are currently trading only modestly above the spring price guarantee of $3.86 for crop revenue insurance. While waiting for a price that offers a positive return has some risk, the risk for corn seems limited over the next several weeks says Darrel Good.

Good :40 … of the price rally, should it occur.

Quote Summary - If a summer price rally does occur, producers will likely want to aggressively price the 2016 crop. In addition, history suggests that a weather market would also result in opportunities for pricing 2017 crops and beyond. A weather market would likely result in smaller price increases for those crops than for the 2015 and 2106 crops, similar to the recent price pattern. From the close on March 31 to the close on May 20, July 2016 corn futures gained almost $0.39, while December 2016 and December 2017 futures gained $0.31 and $0.24, respectively. From the close on March 1, July 2016 soybean futures gained $2.10, while November 2016 and November 2017 futures gained $1.79 and $0.88, respectively. Still, prices for those deferred crops could move to levels reflecting positive returns for most producers. How aggressively to price multiple crops depends on the magnitude of the price rally, should it occur.

One final note here, Darrel Good, as you may have made noticed, thinks pricing out this year’s soybean crop on the current rally is likely a good idea. He’d be far more patient with corn.