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Market Commentary for 6/25/21
This week the corn and bean markets were dominated by upcoming weather uncertainty and Friday’s Supreme Court ruling against the ethanol industry and potentially the entire renewable fuels industry. Plus, July options expired on Friday with some traders under water with their positions after this week’s price set back.
Looking Forward
Everyone is waiting for Wednesday’s USDA report, arguably the biggest of the year, that will provide estimated total planted acres and quarterly stock numbers. Once the market better knows planted acres and remaining old crop supply, balance sheet estimates become clearer. I am estimating 93.1 million planted corn acres, a 2.5 million acre increase from March, and 89.1 million bean acres, up 1 million from March.
Beans – Comparing 2021 and 2014
The following chart shows a similar market situation developing between 2021 and the price of beans in the summer of 2014.
To understand the development of 2014’s bean price structure, it’s important to first look at the 2013 bean crop. The 2013 harvest produced a yield only 1.5 bushels below trendline. This turned out to be nearly 4 bushels better than 2012 and above the previous 5-year average. However, despite this near record harvest, 2013 exports also had a record increase of 23% from the previous year and demand from the crush market was higher than the previous 5-year average too. This increased demand resulted in the smallest carryout and stocks to use ratio ever for the bean market.
In March of 2014 bean demand was expected to continue to be high, so many expected around 3 million more planted acres year over year. However, US farmers planted a lot more beans than the trade expected. The USDA June 30th Acreage Report estimated 6.5 million more planted acres than the year before. This sent November bean prices downward, as seen in the chart below:
Then the 2014 June Acreage Report was followed by nearly perfect summer weather, with the national yield ending up nearly 1.5 bushels per acre over trendline yields (a record) and 3.5 more bushels per acre than the previous near record year. Despite dramatic increases in crush and export demand during the 2014 marketing year, prices continued to trade lower.
Interestingly, the final price close just last Friday was near where 2014 was trading before the big report. So, it raises the question if we are on the same path as 2014.
How Many Acres Have Been Planted?
This is why Wednesday’s report will be so important to price direction. I created the chart below to show several supply and demand scenarios that could occur depending on varying planted acres and yield potential.
The USDA’s current new crop projection has the tightest stocks to use ratio ever this early in the year, which allows no room for error in yields. Any late summer weather issue could reduce yields and decrease carryout to record low levels, which would require higher prices to ration demand.
The USDA has also been known to underestimate demand early in the marketing season. Therefore, in the chart below I have increased export demand to match the average pace from the two seasons before the trade war began. This would still be less than what was exported previously this year.
I left crush demand unchanged from current USDA estimates, because it’s in line with historical trends for the category.
This also assumes South American weather conditions from December to February are near normal and that South America also increases plantings this fall as currently predicted. Since 60% of global beans are produced in South America, any winter production issue could also result in a price spike down the road.
Should We Expect a Bean Rally?
In 2014 US farmers planted 5 million less corn acres than they planted in 2013. Nearly all those acres were switched to beans. Estimates currently suggest that 2021 corn acres will gain significantly more than beans in the upcoming June report. The trade’s recent bean acre predictions range between the USDA adding a few acres up to 2.5 million acres. Assuming 50 bushels per acre on those potential additional acres and carryout could swing by 125 million bushels. Combine that swing with the volatility of weather over the next 2 months and the potential for bean prices could still be anywhere between $10 and $15.
Want to read more by Jon Scheve? Check out recent articles:
Weather, Exports, & Acres Will Dictate Prices - $4 & $8 Are Still Possible
$4 or $8 Corn? $10 or $20 Beans? It All Depends On Weather And Export Demand
How Does The Delivery Process Work For Corn On The CME
More Wild Swings In The Corn And Bean Markets Should Be Expected
Can Corn Make A Comeback After A 90 Cent Drop?
New Crop Over $6 For Corn And $14 For Beans And We Aren’t Even Trading US Weather Yet
Will Corn Need To Trade Above $8 And Beans Above $18?
It’s A Sellers Market And Buyers Are Feeling The Pinch
Can Corn Get Back To $6 And Will Beans Make It To $15?
Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
