(Agrimoney) – When will soybeans stop their outperformance of corn?
One closely watched price ratio at this time of year is that between November soybean futures and December corn futures – the key new crop contracts.
The idea is that the relative prices of the two crops, keen competitors in US growers’ spring planting plans, will, to some extent, influence how much of each ends up being sown.
Since late March, the ratio has recovered from 2.27 to reach 2.46 as of the end of last week, well into territory skewed towards encouraging soybean plantings.
On Wednesday, the ratio hit 2.50.
‘Weather is near-ideal’
Is this sustainable?
The rise in the ratio may well have already done some work in boosting the popularity of the oilseed.
“November soybeans have gained relative to December corn, which could spur additional soybean plantings this spring,” said New York-based Jefferies.
But there are factors which indicate that, for now at least, the ratio may remain elevated – one being the benign weather for corn sowings, which is seen prompting a huge surge in plantings this week, after wetness held up the very early stages of seedings.
“Good planting progress is expected through Saturday before a period of wet weather begins Sunday and continues through May 11,” said Terry Reilly at Futures International.
“US weather is near-ideal for corn planting progress.”
Improved corn expectations
Strong corn planting progress is positive to the soybean:corn ratio in a number of ways.
In reducing the chance of delays, it reduces the chance of farmers being forced to switch some acres from corn to soybeans, which have a slightly later seedings window.
It is also seen as making it likely that farmers will plant more corn.
CHS Hedging said: “Some market participants are concerned that a fast and active corn planting week may push farmers to plant more corn and less soybean acres than expected.”
(While that idea is disputed by Allendale, which sees no strong correlation between an early sowing season and farmer upgrades to corn sowings, the Chicago broker says that farmers tend anyway to plant more of the grain than indicated in US Department of Agriculture area reports every March.)
Early sowings, in reducing the chances of the sensitive pollination process occurring during summer heat, boost yield hopes too, mitigating against strong corn prices.
Real factor
Rapid sowings are also seen as keeping farmers busy and away from the business of crop selling, a factor which would apply to both corn and soybeans, of course.
However, for soybeans, a downturn in US producer sales may be felt particularly as Brazilian peers too seem to have drawn back from hedging, as the recovery in the real – up some 12% from the 12-year low against the dollar reached on March 20 – cuts the value in local terms of dollar-denominated assets.
“There has been some ideas Brazilian producer selling has slowed after the real improved over the past two weeks,” Futures International’s Terry Reilly said.
“Recall, selling increased when the real eroded against the dollar in mid-March.”
‘No interest in selling’
At Benson Quinn Commodities, Kim Rugel said: “In the US, the farmer is in the fields planting next year’s crop and has no interest in selling or moving old crop grain at these prices.
“In Brazil, the producer is hanging onto the last of his soybeans as an inflationary hedge.
“The weakness in the dollar/strength in the Brazilian real this week has not helped persuade the Brazilian producer to sell as rally in the beans is more than offset by the strong real currency.”
As an extra help to soybean prices, the Brazilian harvest is near completion too, lowering pressure from that score on futures, with the ramp-up in supplies at harvest typically weighing on values.
Whatever, one result is that US crushers “are reportedly have trouble sourcing soybeans”, Jefferies noted.
‘Not a simple trade’
Soybean futures eased in early deals, by 0.1% to $9.76 a bushel for July delivery as of 07:40 UK time, (01:40 Chicago time), increasing the appeal of selling and, from a technical perspective.
Soybeans for November gained 0.1% to $9.53 ¾ a bushel.
Meanwhile, corn for July fell 0.3% to $3.63 ½ a bushel, while the December lot dropped 0.2% to $3.81 ¾ a bushel.
As to whether corn’s underperformance can last, Benson Quinn Commodities offered some reason for caution in pointing out that prices have already fallen considerably.
“I am not sure where the trade grabs another fresh negative feature worthy of taking another $0.10-0.15 cents a bushel out of this market,” the broker said.
“Momentum studies hint at lower prices before finding support. However, I don’t think it is going to be a simple trade from the short side.”
How much bearish news priced in?
The broker held a similar idea over wheat too, saying that prices near contract lows have already priced in a stack of good supply news, and highlighting some recovery in the last session.
“While Tuesday’s close wasn’t the best, it was good enough to point those holding recently established short speculative positions on notice.”
And there are, of course, plenty of speculators with short positions, which has been a profitable trade.
Will funds be tempted to take profits and close their shorts, putting upwards pressure on prices?
‘Chatter about disease and insects’
One potential worry for wheat bears is that the US southern Plains crop has not, yet, according to official data late on Monday, seen the condition improvement that many expected.
This factor may gain a higher profile next week with the annual Wheat Quality Council tour of wheat in Kansas, the top wheat growing state, where disease issues are taking a higher profile too.
CHS Hedging noted “continuing chatter about disease and insects in some hard red winter wheat growing areas,” flagging the “possibility that this could be the major find on the Wheat Quality Council tour”.
Still, it is important too to repeat growing ideas of minimal setbacks to northern hemisphere wheat crops as a whole, and mounting expectations that Russia will lift its export restrictions come the new season in July, with the increasing likelihood it will have plenty to ship.
Chicago wheat for July eased 0.3% to $4.75 a bushel.
Seven-month low
Elsewhere, Kuala Lumpur palm oil eased 1 ringgit to 2,092 ringgit a tonne, albeit up from a seven-month low of 2,070 ringgit a tonne set earlier.
The USDA attache in Kuala Lumpur produced a mixed report overnight on Malaysian palm oil prospects, cutting forecast for production both this season and in 2015-16, but lowering export expectations too.
“Exports were less than expected during the first six months of the marketing year,” the attache said, if adding that “shipments are forecast to rebound during the final half of the year as major customers rebuild stocks”.
