Old Crop Soybeans: Give Us One More Rally!

June-18-09

Is there one more rally left in old crop soybeans? Last month I talked about old crop futures reaching $12.50 and having a chance to move to $14. The high, so far, came on June 11 when July soybean futures reached $12.91. The hope for $14 has been dimmed, but not eleminated.

The shortage of old crop soybeans is the isssue. Just how many bushels of soybeans are left in inventory, and how will export sales and shipments play out this summer. USDA’s current estimate is for old crop inventory to drop to 110 million bushels as of August 31. On that day, there will be a mere 13 day supply. New crop supplies will not be in the market until late September. This would be the tighest ending supply dating back to 1960 (previous record was 15 days in August 1965).
Two critical factors to watch will be the June 30 stocks report and weekly exports sales. The stocks report will provide an indication of how many bushels of soybeansa are left in farm and commercial bins. Any surprisingly low invnetory will send beans to new summer price highs.

The rapid pace of export sales made an abrubt reversal for the data released May 28 and June 4 when China’s cancellations of some purchases resulted in falling commitments for old crop beans. These cancellations can come as a result of a buyer having more beans purchased than needed, by a shift from U.S. origin to a foreign origin, or by converting shipments designated originally as old crop dates to new crop delivery periods. Cancellations serve as a reminder that some countries can make adjustments in old crop shipments when prices move much higher.

Still, our current commitmenets (shipmensts to-date and unshipped sales) stand at 1.243 billion bushels, with USDA estimating total exports of 1.250. Thus, with 11 weeks still to go in the marketing year, only 7 million more bushels of sales would reach this mark. This means grain companies must be very careful about selling more soybeans, because supplies simply may not be availble from farmers.

As a result of withering old crop supplies, soybean basis levels moved upward to a range of +10 cents to +25 cents over futures in late-May and early June in central Indiana. This is the strongest basis since the spring/summer of 2004, the last time bean usage had to be curtailed. Basis levels have eased into mid-June as producers moved more beans to market when futures prices droped sharply from June 11 to June 15. This may mean that prrices have gone high enough to ration supply, or may just be a short-term reaction to more beans coming to market.

The USDA again lowered production in Argentina to 32 mmt which was 31% below last year. World soybean yields were 11% below trend in 2008/09 with Argentina at 33% below trend, Brazil at 8% below trend and the U.S. 2% under trend. Since January, USDA has lowered Argentina’s production by 643 million bushels, the rough equivalent of production in Illinois and Indiana combined.

How much to bet on $14. That is up to each indivual, but my guess is that old crop beans will re-test the July high near $13. If that holds, then the $14 mark becomes more likley. The events that might trigger this move most likely will be the stocks report June 30 and/or the weekly export sales reports each Thursday morning. The third factor that could come into play is the summer weather. Beans are very late planted in the Eastern Corn Belt, and beans do not like wet feet – the pattern so far this spring.

Better new crop pricing opportunities could lie just ahead. The first of those would be if/when old crop July futures re-test the $13 area. Any weather concenrns would also provide higher prices. In general for this year, one might consider pricing more beans in the early part of the marketing year because South American acreage will rise and a return to normal yields there could result in lower priced beans in the the last-half of the marketing year from March to September 2009.

Chris Hurt
June-18-09
Purdue University