As markets react to Allendale, Inc.’s recent survey suggesting 6 million additional soybean acres will be planted in 2014 compared to a year ago, analysts are debating whether it means bearish conditions lie ahead.
"Beans? Sit down," says Bill Biedermann, Allendale, explaining the survey’s assumptions. It’s 44 bu. yield versus 45 the trade is using—so we’re conservative—and 420 carryout. This is not a bullish scenario."
But Mike Florez, Florez Trading, argues it’s premature to say where the market is headed.
"Certain things have to happen for you to be right. If I’m bullish, certain things have to happen for me to be right, too," he explains. "At this point in the future, we don’t what the answer’s going to be. You may have a drought this year. You may not be able to plant corn this year. I don’t know. I don’t know what it’s going to be. There are too many unknowns right now to say, ‘Corn’s going to go to $3, or corn’s going to go to $8.’ You don’t know."
The truth of the numbers ultimately will be decided at planting.
"I think the whole key is going to come down to spring," Bidermann concludes. "If you can’t get it planted, then you’ve got to go bullish. But if you can get it in the ground, that’s going to be a hard boat to turn around."
Florez argues that history is instructive when trying to understand where a market is headed.
"On corn, since 1877, we’ve had 62 major bear markets, and the one we just completed was the third-biggest bear market we ever had. The rally’s back," Florez says. "On a big bear market, you get bigger rallies back. They averaged from 28% to 95% rally-back. If we just get a 28% rally on this go-around, that tells you the front end of the corn market should be at $5.33. If you get an average of what those corrections were, it takes you to $5.88. So unless we’re different now than we’ve been since 1877, history tells you you’re going to go higher."
Biedermann agrees, but only to a point.
"Let’s just say that we already hit $5.10 or $5.05 or something like that. The point is that you could rally a little bit more in this old-crop corn," he acknowledges. "But then the rally’s over and then you’re looking at a 2 billion bushel carryover for this coming year and you’re looking at a huge carryover worldwide. We’re 20 million tons above average—more than that, actually, 30 million tons. What’s after that? I think the world economy is a big piece of this puzzle. You mentioned the outside money coming in. That’s been a big piece of this puzzle. How big can their positions get before they start trading China’s economic problem or their poultry problem or their pork problem or our pork problem. I think we’re getting to the end of this thing, and the risk is going to be, what happens if they all want to get out of the barn door at the same time?"
Click the play button below to hear the complete debate in the U.S. Farm Report Market Roundtable: