Demand and Weather Outlook Fuel the Rally

December 5, 2016 04:30 PM
Demand and Weather Outlook Fuel the Rally

Soybean and corn futures rose sharply Monday, pushed up by a forecast calling for dry weather in Argentina and increasing demand for exports and biofuels. January soybeans climbed 16 cents, closing at $10.43 ½, while corn went up 12 cents to $3.49 ½.

Money flow from speculative funds also drove up prices, according to analysts.

“Fund rotations (went) into the commodity sector, led by feed-grains in the aftermath of no follow-through buying in the U.S. dollar after the Italian referendum was defeated,” says Mike Zuzolo, president of Global Commodity Analytics in Atchison, Kan.

Other analysts pointed to a forecast for dry weather in Argentina as a market mover.

“There is news out of South America today, a quarterly report from Argentina’s meteorological service, of greater probability of below normal rain fall in the central part of the country,” says Dale Durchholz, senior market analyst of AgriVisor, in Bloomington, Ill.

This forecast comes at a critical time, in part of Argentina’s corn belt impacted markets, says Mark Schultz, chief analyst, Northstar Commodity Investment Co. in Minneapolis, Minn. With a forecast of below-normal rainfall through February, dry weather could catch corn at the vulnerable silking stage in the country’s central area, where up to 50% of Argentina’s corn crop is grown, he explains.

Other factors included “a pretty good sell-off in the corn market in the last week, and a good corn sale over the weekend announced by South Korea, Schultz says. Export demand for soybeans still is  “relentless,” he says.

Another factor pushing up demand for soybeans is soybean oil demand under new renewable fuel mandates by the U.S. Environmental Protection Agency, according to a report by Darrel Good and Scott Irwin of the University of Illinois.

Demand will rise because 7.4 pounds of feedstock are required for each gallon of biodiesel production, and soybean oil accounts for 54% of those feedstocks, according to Good and Irwin. At that rate, an increase in biomass-based diesel production of 719 million gallons in 2017 would require an additional 2.87 billion pounds of soybean oil, they say.

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