In August, our forecast for this September was that a record soybean crop would be reported by USDA, which is now well known by anyone who follows commodity supply and demand worldwide, and the price of soybeans has moved lower. Specifically, soybeans have lost roughly $0.90 or about 8 percent, and corn is down roughly $0.28. The corn crop is also going to generate a record supply. While the supply-side news is becoming well known by traders, producers and users, we believe the market still has more downside before a low is achieved.
Let’s make sure everyone is on the same page: A market low will not be known until we can look backward and see where the market is at the time vs. wherever the low was.
The early harvest yield reports are outstanding or very high compared to normal trend history. However, within another few weeks, actual yields vs. yield history vs. expected yields will soon be old news and have diminishing importance.
Domestically, livestock producers will be in a position where the two primary feed commodities — corn and soybean meal — will have a large supply, and the price has adjusted to those increased supplies. Right now, however, the soybean harvest is starting out slow, and old crop soybeans will remain very tight for another 2-3 weeks. Some users of feed protein may need to seek an alternative protein to use since there is more corn being harvested and processed than soybeans being processed to make soy meal or oil. To be more specific, wet milled corn makes corn gluten feed and meal, both with protein content. Nutritionists will need to use their expertise to adjust and balance the ration for the short term to a supply of feed that is available vs. proteins that will be difficult to obtain.
Can the news get any more bearish?
The short answer is yes. Believe it or not, if you add all 2014 U.S. crop production and estimated carryovers, subtracting some reduction for use and compare that with available storage as reported by USDA in both on farm and off farm, those numbers closely match … at about 23 billion bushels. This means that for a few states, there is not enough storage, and, more specifically, Indiana, Missouri, North Dakota and South Dakota have a problem. Right now, several elevators in the Dakotas are full of wheat and cannot take more bushels because they can’t move out what they have in their space. Some farmers in North and South Dakota may consider leaving their corn crop in the field over the winter months, harvesting in spring 2015 and hoping storage space will improve, along with transportation. Insufficient grain storage at the farm should cause sell-side pressure by farm producers.
It bears repeating that it appears very little of the nearly 4 billion bushel soybean crop has been priced and will be delivered to elevators or soybean crushers. We also believe the soybean crop could still get bigger by one half to one whole bushel per acre.
Commitment of Traders Report
Over the past month, seen in the chart CFTC Commitment of Traders Report, the Commodity Futures Trading Commission reports the commercial position in soybeans has increased its long position. It should not be this way, given a record soybean crop that is still mostly in the field. To explain, as farmers sell soybeans, the buyer of those soybeans would sell/short futures, thus the report would show commercials are short, not long, soybeans.
Farmers need to accept the fact that soybeans are fundamentally priced to current supply and demand … not $15 per bushel. The strong crop here in the U.S. has catapulted world soybean stocks, and all soybeans producers and users are getting a lesson in global supply and demand.
The size of the 2014 corn and soybean crop will keep prices mostly defensive and trending lower for another two to six weeks. The high quality expected from this corn crop should eventually stimulate export demand. However, we first need to be able to get this crop to a port for shipment, and right now rail and barge traffic has a few challenges of its own and won’t make transporting record supplies of corn and soybeans easy.
Tim Brusnahan joined Brock Associates in 1985 and provides commodity price forecasting, research analysis, hedging and marketing strategies for crop producers, dairy and livestock producers and procurement/risk management strategies for feed manufactures, corn processors, and other end users. Contact Brusnahan at 414.540.2607 and firstname.lastname@example.org .
The views and opinions expressed are not a solicitation of trading futures and options contracts. There is risk of losses as well as profits when trading futures and options, careful consideration to all risk aspects of commodity/derivative trading should be considered before trading, and past performance is no indication of future results.