When there’s a 100-million bushel gap between USDA and trade estimates for new-crop soybean carryover, the market tends to respond.
That’s what happened Tuesday, when USDA released its May reports, pushing soybean contracts limit up as they hit their daily maximum gain of 65 cents. July and November futures prices rose more than 50 cents to close at $10.84 and $10.675, respectively.
Farmers and analysts alike are taking notice and considering what it might mean.
“When we get a report reaction like we did and we sustain it through the close, it could be a game changer in the bean market,” said Chip Flory, editorial director of Pro Farmer and host of Market Rally Radio, on his radio show yesterday.
Why are these numbers so important, apart from the financial boost they just provided to growers worried about thin profit margins? It’s because they represent a break from USDA’s typical forecast pattern, according to Brian Grete, editor of Pro Farmer.
“Did the USDA get too aggressive?” said Grete, also speaking on Market Rally Radio with Flory. “Historically, USDA starts pretty conservative on the demand side and a little bit high—sometimes way high—on carryover.”
If that pattern has been reversed this year, it could make it even tougher to handicap the grain markets than usual.
“Just because USDA says we are going to use a total of 3.925 billion bushels of soybeans does not make it so. It’s a dynamic number. It’s a moving number and price is going to have an influence on it,” said Flory. “What concerns the heck out of me is the pattern we typically see in carryover,” where high carryover pushes prices down, raising demand from bargain-seeking end users, who must then pay the demand-driven higher prices. “If we’re starting low this year and getting a 50-cent rally right off the bang, what are we doing to our total demand?”
For now, though, growers might just want to do their best to take advantage of prices like $10.78 July soybeans. “We are now at price levels we haven’t seen in a long time,” said Grete. “We’re talking about years of price strength that we have made up since the March lows.”
Listen to the Market Rally discussion here: