What Happened to Corn and Soybean Prices This Week? It's Called the Hangover Effect
USFR-Roundtable 1 012024
Soybean prices just couldn't find footing on the CME this week. A couple days started in the green, things looked promising, then a sudden reversal causes prices to change course. Soybean prices ended in the red every day this week, after a major price drop after the USDA report.
What caused the price pressure again this week? Naomi Blohm of Total Farm Marketing by Stewart-Peterson says the markets still seem to be trading USDA's January report released last Friday.
"It was just the fact that the USDA, on that report last week, raised U.S. ending stocks, and they didn't really adjust that Brazilian crop number as low as what the market was hoping," says Blohm. "So, that propelled prices to go down to some major support levels, however, on the front month, the March contract, $12 is big support. Going back almost to last summer, we filled a gap on the chart, and it was the downside swing objective target. I think the market right now trying to find some good support at this $12 area."
Going forward, Blohm continues to stress the biggest unknown is the size of Brazil's crop.
"A lot of the industry not believing the USDA number of that 157 MMT, with some people in Brazil saying it's as low as 137. So, that's going to be what the markets talking about in the coming days and weeks, and the reason why we could potentially get some kind of a price rebound higher into February."
The projections on the size of Brazil's soybean crop are still all over the board. Some private estimates out this week projected the lowest soybean yield in Brazil in 15 years.
John Payne of hEDGEpoint Global, says they have offices in Brazil, and they're current crop estimates are more conservative than some of the low estimates circling around today.
"We're sitting somewhere in the mid 150s, between 150 and 160s MMT, where the USDA wants to be in the short-run," says Payne. "I don't know if I buy being much below that, but I don't think it really matters in the short-term."
Payne says there are two main problems in the soybean market.
"First, we have supply available right now in Brazil, and we'll call it almost $60 to $70 a metric ton cheaper than the U.S. So that's almost $2 cheaper than that it's being offered in the United States on the ports," says Payne.
The second headwind for soybeans is on the crush side, according to Payne.
"You have a U.S. crusher here bidding up U.S. supply," says Payne. "So, that's keeping exports from moving to China, not to mention the relations politically that are an issue. So, I think short-term here, you have kind of a harvest market, where you've seen supply, crush in Brazil isn't great, crush in Argentina isn't fantastic. And the product markets that essentially rely on moving to China isn't happening because China is a train wreck."
Payne says all of those factors are what's pressuring prices to the downside.
"I don't know if we see prices much lower than $11.50. I think the U.S. producer will have to kind of throw the towel, to a degree, on acreage to get the market to go back to where it was," says Payne. "But at this point, I think it relies on the product markets. If we can't see bean oil trade north of 50 to 60 cents next year, I don't think those highs that we saw last year are going to be tested."
