Market Outlook

October 28, 2015 02:36 AM
 
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By Chip Flory

Market Update with Chip Flory

Competition Drives Export Demand For Soybeans and Corn

In October, USDA’s Crop Production report cut 437,000 acres from harvested corn acreage and 1.12 million acres from the projected soybean harvest. Despite higher average yield estimates, crop estimates for corn and soybeans were down from September.

Market focus now swings to grain movement and demand. Soybean export shipments started the year strong, but 2015/16 soybean export bookings lagged year-ago levels by a wide margin. USDA sees exports of just 1.675 billion bushels in 2015/16, 168 million bushels (9%) below year-ago levels.

Don’t confuse the slow bookings pace with slow demand, though. It’s not a consumption issue—it’s a competition issue. Currency fluctuations have shifted buyers to Brazil, and it will be a waiting game until Brazilian supplies tighten or until El Niño creates uncertainty over a potential 3.675-billion-bushel Brazilian soybean crop.

Slow U.S. soybean export sales and a carryover of more than 400 million bushels will cap price potential, but the market does have value near $8.75.

Corn exports struggle with the same currency influence, as Brazil and Ukraine are filling needs in traditional U.S. markets in Asia. Still, a carryover projection below 1.6 billion bushels supports March corn futures near $3.90 to $4.

The 2016 U.S. crop mix is drawing early attention. New-crop 2016 price relationships currently support more corn acres with a 2.2-to-1 soybeans-to-corn price ratio. 

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By Nate Birt

Ask an Analyst: Richard Brock | Brock Associates
rabrock@brockreport.com

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When you aren’t thinking about commodities, what activities do you enjoy most?
Flying (I’m a pilot) and golf. I’m a much better pilot than a golfer.

What is your commodity marketing philosophy? 
Always protect the downside in a bear market and use marketing tools you are comfortable with. 

Who is one expert in our industry whose business advice you respect greatly?
Clayton Yeutter, secretary of agriculture from 1989 to 1991. He’s a brilliant man who understood agriculture policy and trade.

Which marketing tool is most underappreciated?
The use of futures and options strategies to protect risk. When using these tools, understand the goal is to increase the gross value of your crop or livestock, not to be entertained in the futures market.

What’s one action every producer should take to manage risk as 2015 ends?
Different strategies and tools work in bear markets versus bull markets. Historically, once the trend turns back up, the average producer will compare the price to the low in the past six months and sell too early. Be careful about getting too much sold too early. 

What percentage sold should farmers be on corn, soybeans and wheat for 2015/16 crops? 
In the case of corn, for the 2015 crop, we are only 30% sold in the cash market but have hedge profits in the bank of 28¢ per bushel on 100% of the crop. On the 2016 crop, we have nothing sold. We think the next selling opportunity will be in March. For soybeans, we are only 10% priced in the cash market but have considerable hedge profits of $1.35 per bushel in the bank. We have nothing sold for 2016/17. In the case of wheat, we are 70% sold on the 2015/16 crop from significantly higher price levels and have nothing sold for 2016/17. Be patient on these crops, as well.




 

 

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