Power Hour: Catch an Old-crop Soybean Rally

May 24, 2013 09:30 AM
Power Hour: Catch an Old-crop Soybean Rally

The nearly $2/bu. spike in old-crop soybean prices from early to late May is creating a second chance to catch higher prices. "I’d serious be looking at old crop sales," suggests Frayne Olson, ag economist at North Dakota State University. At $15, old crop soybeans on May 23 were sitting at their highest point since September 2012.

Key reason for the rally? "We haven’t really slowed old crop use as much as we need to," Olson says. Supplies continue to be very tight. Some analysts believe USDA’s ending stocks figures of 125 million bushels is actually too high, with stocks actually 100 million or even less.

For example, while exports have declined as they typically do this time of year when South American production hits the market, the U.S. still is getting export business from China, Olson explains. "And the crush has been hanging in there." Producers need to be prepared to act quickly, however, given how volatile prices are. On May 23, for instance, the trading range was 50 cents. And that’s just one day.

Comparing old crop and new crop prices is really the tale of two cities, with new crop soybean futures trading in the low $12 range. Olson is not suggesting aggressive selling of new crop at those levels, but rather, be ready to sell on summer weather rallies. "For both soybeans and corn, volatility will continue," Olson says. Moreover, summer weather rallies could bring speculators back into commodity markets, even though many have shifted into equities, given the recent strength of the stock market.

Expect Summer Corn Rallies

On new crop corn, Olson believes the odds are greater for higher prices between now and August than lower prices. Right now the trade is banking on 97 million acres and average yields in the 155 to 158 range. While impossible to know right now, with corn production just getting planted and started, somewhere, there is likely to be a production problem, and once a true weather event becomes factored into the market, selling opportunities will present themselves.

Moreover, Olson notes that while it’s good news that nearly half of the U.S. corn crop got planted last week, it also means that all such corn will be pollinating at the same time, and if that occurs during hot and dry weather, yields could suffer and prices could in turn spike, at least temporarily.

As a result, he suggests being ready to sell, but not necessarily pulling the trigger on new crop corn just yet at $5.50/bu., nearly two bucks lower than old crop.

Olson says that some quirky things could happen in the corn market this summer with supplies of old crop so tight and delayed planting this spring of new crop. For starters, there could be unusually tight basis in some areas, with corn shipped to unusual locations. "Even corn imports are possible, for example, from Brazil and Argentina into the Carolinas."

And places with early harvest, such as Texas, could find exceedingly strong demand and accompanying prices and basis, before harvest kicks in elsewhere, in the Corn Belt. "Some ethanol plants could even shut down their production for a time and sell their inventory," Olson says. Such events could be short-lived. In comparison, early harvest in recent years has allowed new crop corn to help meet demand for old crop. That won’t likely happen this year with later harvest, Olson predicts.

Wheat the Sleeper

"Wheat has been the sleeper until recently," Olson says. "Wheat may take on a life of its own." That means prices could be de-coupled from corn, which they have been linked to over the past year. While global wheat stocks have been significant over the past year, the combination of weaker U.S. production, along with problems in the Black Sea region and Europe could send prices sharply higher, and such events are possible given early reports. Still, 2013 wheat production is a long ways off, he notes. "And winter wheat is a crop with nine lives."

Furthermore, "spring wheat in the U.S. is only 50% planted." In addition, the winter wheat crop in the U.S. is in poor condition combined with frost damage, he adds. Combining all that, it’s possible that prices could go from $5.60 at present all the way to $7.90 or $8. "Very significant rallies are possible," Olson says. As a result, and because it’s too early for producers to know their yields, he advises that growers be patient in marketing wheat as opportunities may present themselves moving forward. 


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