After a bullish report from USDA on Tuesday, soybean prices are nearing $12. In its November reports, USDA revealed tighter ending stocks based on demand and a cut in U.S. supplies.
Arlan Suderman of StoneX Group says while USDA lowered 2020 yield projections in the November report, yields are still near record high levels.
“It just shows how well we can produce in this country, it would have been a fantastic crop of corn and soybeans had we not had a poor finish to it,” says Suderman. “What we really saw in the end was we dropped the yield by keeping the ear counts the same. That means what we saw was smaller kernels and we really had good dry down in the field. We probably put some corn into bin, less water weight over the scales, resulting in those lower yield reports.”
Soybeans’ Story
Suderman says the bottom line is the dry August hurt yields, all while exports continued to ramp up. Both of those factors caused USDA to tighten ending stocks this weeks.
“We have soybean ending stocks now at 190 million bushels and corn ending stocks at 1.7 billion bushels, a far cry from what we were thinking the market would have back in early August,” says Naomi Blohm of Total Farm Marketing, a division of Stewart Peterson.. That’s when we had low prices and the prospects for record crops.”
With a shift in ending stocks projections, Suderman says tightening soybean stocks combined with strong demand is painting a very different picture from what the markets faced this summer. It’s a story helping fuel prices toward $12.
“We’ve tightened up soybean stocks to a 4.2% stocks to use ratio,” he says. “That’s getting very, very tight, and we did that was just with the drop in production. We haven’t adjusted the demand upward yet to some of the other dynamics of a potential short crop in South America. That’s what the trade is really excited about.”
Where Do Corn Prices Go From Here?
The situation for corn is also a tightening stocks scenario, but the market is still keeping a close eye on a few factors that could cap prices.
“The stocks to use ratio for corn is getting down closer to 11%. And it really sets the stage for firm prices going forward,” she says. “How high we can go truly just depends on Mother Nature, and what happens in South America.”
Suderman says South America is one factor that could become a roadblock for higher prices, but it’s also a domestic demand scenario the market is watching.
“On corn, we can still go either way from this 11%,” says Suderman. “We could go higher, or we could go lower, depending on how a number of factors play out with China, South American weather and whether we have a shutdown here in the United States that kills ethanol demand.”
Suderman says trying to guess the outcome for corn is tricky, especially with climbing COVID-19 cases and the possibility of another national shutdown. However, even with a potential shutdown of the economy, and loss of driving demand, it’s not a definite dreary picture. He thinks there’s a possibility the market- and prices- can overcome the bearish news.
“It would be different [from this past spring] because we do have some solid global demand right now, especially for soybeans. For corn, it could be very similar, though. We lost over 550 million bushels of demand last spring because of the shutdown for corn. Where would we be now had we not lost that demand? We’d be looking at stocks at 1.2 or 1.3 billion bushels and prices much higher than what they are now. At the same time, if China does not increase their TRQs for corn dramatically to 22 to 26 or even 30 million metric tons, like some believe that they will, and we do not have a short corn crop in South America, but we hit a shutdown that kills our ethanol demand, we could be looking at ending stocks again at 2.3, 2.4 billion bushels.”
Suderman says if those factors go the other direction, and China increases TRQ, there are weather issues in South America and ethanol demand doesn’t drop dramatically, he thinks stocks could end up being somewhere between 1.2 and 1.3 billion bushels, which would result in higher prices.
“The wide range of corn possibilities is still huge depending on how those factors play out,” he says.
Blohm thinks a large crop in South America may already be priced into the market, meaning even a small reduction in supplies there could help prices.
“If South America ends up have record crops for corn, they’re expected to have about 110 million metric tons for production, so there is already an expectation for a large global supply from South America,” she says. “That’s priced into the market already. If things turn a corner, and if the dryness continues down there, then that is what would be the next stage for higher prices. Until then, we may see prices trade in a sideways pattern for the moment, we have to keep an eye on our export demand, as Arlan talked about watching ethanol demand, and is there going to be another shutdown or not for this country.”
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