What Will Soybean Prices Do on Monday?

November 21, 2015 05:00 AM
soybeans hands

Why does Sunday's presidential election in Argentina matter to U.S. farmers? Because the results could affect soybean prices as early as Monday. 

Both candidates--Daniel Scioli and Mauricio Macri--have pledged to lower taxes on agriculture exports, which could prompt Argentinian farmers to unload the soybeans they’ve been holding in storage, which add up to an estimated 700 million bushels. Argentina’s currency could also be devalued, which could  encourage farmers to sell since soybeans are valued in U.S. dollars.

“We’ve been hearing how many beans that farmers have been holding over the last couple of years. They didn’t come to market last year,” said Jerry Gulke, president of the Gulke Group, on Farm Journal Radio's Weekend Market Report. “They have a pretty high inflation rate there. So if you’re valuing your sales in dollars and your currency is devaluing because of inflation, then you want to hold that dollar-denominated item.”

The question, he added, is if Argentina would eliminate the tax over time. 

“That is hanging over the market,” Gulke sad. “I think the key will be Monday morning when we wake up and listen to what happened over the weekend ... If it’s a negative effect, which everybody expects, and if the price of beans go higher, then something’s up. Then we missed something. The devil is in the details that people missed.”

Listen to Gulke's full comments here:

Back at home in the U.S., farmers have been watching the markets too.

“These sideways markets are just kind of testing the patience of the guy that probably needs money and is going to sell and debating what to do,” Gulke said of the lethargic price action this week with corn, soybean and wheat prices scraping near contract lows.

The December corn contract ended the week 5 cents higher at $3.63¼ per bu., and January soybeans were up 2 ¼ cents on the week at $8.57½ per bu. Chicago December wheat was down 7¼ cents for the week at $4.88½ per bu., while Kansas City December wheat closed the week 8½ cents lower at $4.57  per bu.

With the markets making no headway in improving off recent contract lows, farmers in need of cash are opting to enroll their grain in USDA's Loan Deficiency Payment program, or LDP.

“The loan applications have been accelerating. They’re more than they were last year,” Gulke said, noting that the total under loan was 1% to 2% of the total corn crop, which is currently figured by USDA to be 13.654 billion bushels.

If commodity prices were to stay low for an extended period of time and more farmers decided to put their crop under loan, those supplies would be taken off the market for nine months, Gulke explained.

“They give you nine months to pay it off. Nine months pretty much goes through all next summer. I’ve done that in years past when I needed to, but you figure if we can get 10% under loan, that’s 10% of a 13 billion bushel crop--that’s 1.3 billion. That’s almost the total carryover for corn next year that suddenly is off the market, and it stays there unless prices rally,” Gulke said. “And, of course, a lot of people are talking about how they need $4 corn. So, that would be good news to use that.”



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Spell Check

Geneseo, IL
11/22/2015 09:59 PM

  It doesn't take the crop out of the market for nine months. You can still sell at any time.

g asher
roachdale, IN
11/22/2015 03:24 PM

  this is one of the times that jerry actually makes sense. I have been doing this for over 20 years. putting that grain under usda loan takes it out of the market and still gives you some cash flow, the loan rate for my county is $ 2.00 and the interest is 1.625 %. it's a no brainer, now you've got 9 months to market it. it needs to be done on a large scale to have an effect on the market !

mitchell, SD
11/23/2015 10:53 AM

  with loan rates so extremely low, a lot of places below $2.- corn and $5.- on soy, I doubt many want to do the gov't paperwork?! But the interest rate is right. I could see some using this as a way to buy time till after the new tax year....God forbid a tax problem, even with these prices. Oh no!! And true, one is NOT locked into the deal for nine months. Can redeem at any time. I have seen very few go the full nine months.