Soybeans worst bet among ag commodities

December 2nd, 2014

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Category: Grains, Oilseeds

Soybean-Oil-Basis(Agrimoney) – Soybeans represent the worst investment among agricultural commodities for 2015, on course tumble 10% to a five-year low, while corn represents a more stable bet, Rabobank said.

Chicago soybean futures, after averaging an estimated $9.80 a bushel in the current quarter, face a continued slide throughout 2015, to average $9.00 a bushel in the October-to-December period.

The price is lower than the futures curve, which on Monday was factoring in prices of $10.13 ½ a bushel for January 2015 delivery, and $9.95 ½ a bushel for the January 2016 contract.

However, prices “are likely to stay below the forward futures curve if the forecast record crops in South America materialise”, the bank said.

“The high US [soybean] crop in 2014, combined with the expected record crops in South America in 2015, will ease the global balance sheet significantly.”

‘Favourable economics’

The forecast reflects an expectation that soybean production in Argentina, Brazil and Paraguay, responsible for the vast majority of South American output, will rise 7m tonnes to 156m tonnes for the 2014-15 crops, harvested in 2015.

Such expectations factor in “favourable soybean economics vis a vis corn,” the oilseed’s major competitor in sowings programme, with the soybean-to-corn price ratio at levels which favour soybeans.

Meanwhile, Chinese imports in 2014-15 will hit 73m tonnes, up 4m tonnes year on year, but 1m tonnes below the forecast from the US Department of Agriculture, whose estimates set world benchmarks.

“The development of the Chinese and global economies might put a question mark on the magnitude of the growth of the animal protein sector, and the respective demand for soymeal.”

The growing affordability of meat for Chinese consumers, meaning higher needs for animals and feed ingredients, has been a big support for soybean prices.

‘Potential to drive risk premium’

Rabobank was less downbeat on corn, seeing futures average $3.60 a bushel in the October-to-December period of 2015, the same as it forecasts for the current quarter.

The grain will be favoured by the limit to production posed by a drop potentially to 88.3m acres in US corn plantings next year, in the bank’s opinion, compared with 90.9m acres for 2014.

Coupled with a drop in Brazilian production of safrinha corn (planted early in the calendar year on land vacated by the soybean harvest) of 10% to 44m tonnes, the drop in US prospects will “support prices in the second half of 2015”.

US corn sowings down 3m-4m acres mean that “the probability of increasing stocks year-over-year is small, which has the potential to drive a $0.20-0.40-a-bushel risk premium back into the spring Chicago futures prices”.

Factoring in a trend yield, which Rabobank estimated at 163 bushels per acre for next year, US production would come in at 132bn bushels, leaving year-end stocks for 2015-16 at 2.0bn bushels.

That implies a stocks-to-use ratio, a major pricing metric, of less than 15%, potentially driving Chicago corn prices in the April-to-June quarter of 2015 “close to $4.00 a bushel”.

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