Soybeans Taking Over Price Lead

July 20, 2012 01:32 AM

What Traders are Talking About:

* Beans ripping higher. Soybean futures continue to rip higher amid dim prospects for improved weather as the crop moves into its most critical stage. While corn has led the price surge as traders factor in yield losses, there was some hope the soybean crop could still recover if weather conditions turned favorable. Given the extended forecasts from the government yesterday calling for above-normal temps and below-normal precip across the Corn Belt and Mid-South, those hopes are fading quickly. Soybeans have taken over a leadership role as traders are now starting to factor in more yield losses and are actively building more premium into the market.

The long and short of it: The biggest difference between soybeans and corn is soybeans are forecast to see carryover tighten year-over-year before crop losses are fully factored into the equation. That means there must be aggressive rationing of supplies, which takes higher prices -- even from current historic levels.

* RIN demand building. Slowed ethanol production amid tight supplies and surging prices is causing gasoline blenders to turn to RINS to meet blending needs. The price of RINS has risen more than 150% since the beginning of July to 4.75 cents per gallon and will increase even more. Government data shows there are 2.6 billion gallons (equivalent to slightly less than 1 billion bu. of corn for ethanol grind) available for use this year. Last year, RINS traded at about 10 cents per gallon at their peak ahead of harvest. In 2008, RINS trade in the mid-teens as soaring corn prices slowed ethanol production.

The long and short of it: The use of RINS will help USDA partly offset some of the production shortfall this year by plugging a smaller corn ethanol grind figure into the 2012-13 corn balance sheet. But even with a reduction in corn-for-ethanol use, USDA still must get creative in cutting use if the crop shrinks as much as many fear.


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