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Published July 14, 2014, 09:33 AM

New crop soybeans

WINNIPEG, Manitoba — Soybeans are well into the process of collapsing to new crop levels.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — Soybeans are well into the process of collapsing to new crop levels.

As late as early June, Manitoba elevators were buying spot soybeans at $14 per bushel. Today soybeans are being bought at $11.85 and new crop is being contracted at $9.50. Delmar is contracting new crop at $9.66.

The drop in value of soybeans, if anything, is accelerating. New-crop November soybean futures have been dropping since May with the biggest drop coming immediately after the U.S. Department of Agriculture’s bearish stocks and planting reports on June 30. That bearish report, which indicated old-crop supplies would not, in fact, run out and that new-crop plantings were huge, removed any hesitation that speculative traders might have had about shorting soybeans.

New-crop soybean values are already below $10 per bushel, but could easily take another leg down. Charts suggest we could lose a further $2 per bushel.

The outlook is decidedly bearish. American plantings this year were 84.8 million acres, up 11 percent from 2013. This was 3.3 million acres above March intentions and above the highest pre-report estimate.

Crop conditions are unchanged at 72 percent good to excellent, the second-highest rating in history for this week. Blooming is at 24 percent, with the norm being 21 percent. USDA estimates the average yield at 45.2 bushels per acre, a record by 1.2 bushels. That would produce an American soybean crop of 3.8 billion bushels. Given the excellent progress of the crop, final yields could conceivably be even higher. Some analysts are forecasting as high as 47 bushels.

The 2014 to ’15 crop year starts with a soybean carry in of only 125 million bushels, one of the tightest end stocks in modern history. If the 45.2 average yield is attained for the 2014 crop, the carryout next fall will probably be more than 500 million, the largest in history except for 2007, when futures traded at $7.76 per bushel.

Producing areas around the world jumped on the high-priced soybean this spring. Canadian soybean production is estimated by Ag Canada to be 5.7 million metric tons — 210 million bushels. Plantings were at record levels in Ontario, Quebec, Manitoba and Saskatchewan.

An additional surge of soybean supplies has the potential to emerge out of Argentina. This is the world’s largest soymeal exporter and an economic basket-case. Inflation is surging and Argentine farmers have been holding onto their soybeans as a hedge.

The 2014 northern hemisphere soybean crop will not be made until August so it might be a bit premature to sell out.

New-crop canola

Despite the adverse conditions in Southeast Saskatchewan and parts of Manitoba, above-trend yields are expected in most regions of the prairies, offsetting the lower production caused by adverse rains. Above-trend yields will result in extremely burdensome supplies in Western Canada.

Earlier in spring, we advised subscribers to sell the first 20 percent for harvest delivery to provide timely cash flow and alleviate storage concerns. Basis levels are relatively wide for September and October, but narrower for November and forward positions. Therefore, look for opportunities for stronger basis levels in the deferred positions. Vancouver fobbing capacity is full for the first half of the crop year and the additional deliveries from farmers will have to be consumed by domestic crushers.

This situation has resulted in the wider basis levels during the first three to four months of the crop year.

The U.S. soybean crop is developing under favorable conditions. There is considerable downside risk. Canola has been supported by historically high meal prices but these are expected to collapse once the bean crop is more certain after flowering.

Milling wheat update

Milling wheat prices in Western Canada have been under pressure since mid-May. USDA estimated nondurum spring wheat plantings at 12.71 million acres, up 1.1 million from 2013. The carryout for 2014 to ’15 U.S. hard red spring wheat is projected at 219 million bushels, slightly higher than 208 million in 2013 to ’14 and sharply higher than the 10-year average of 152 million bushels.

Statistics Canada estimated spring wheat acres (nondurum) at 17.6 million, down 7.4 percent from 2013. Despite the lower Canadian acreage, the market remains under pressure. Conditions are favorable in most of the prairies.

Similar to the U.S. spring wheat situation, the Canadian nondurum wheat carryout will be sharply higher than the 10-year average.

Milling wheat might experience a minor bounce in the next couple weeks as the corn crop goes through the critical pollination stage. The next selling opportunity will likely occur after spring wheat harvests are completed. World wheat markets continue to grind lower as winter wheat harvests continue in Russia, Europe and the U.S.

Durum market remains firm

World durum values continue to percolate higher as traders monitor and assess the crops in North Dakota and Saskatchewan. The durum harvest in France has adverse weather downgrading quality. Elevator prices in Western Canada are not reflecting the current world market; therefore, we are being patient to advise further sales.

Grain companies will not oversell their logistical capacity. Until the logistics situation is more certain, the upside potential in the country system may be limited.

Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, call 1-800-567-5671 in Western Canada and North Dakota, 204-942-1459 for all others, or e-mail admin@canadagrain.com or visit canadagrain.com.

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