Ray Grabanski column: Soybeans rally as acreage concerns build
Wheat Wheat started the week lower with light trade because of the Veterans Day holiday and on concerns over demand and lower than expected export inspections. This pressure continued into Nov. 13, when international factors began to influence th...
Wheat started the week lower with light trade because of the Veterans Day holiday and on concerns over demand and lower than expected export inspections. This pressure continued into Nov. 13, when international factors began to influence the market. Early in the week, Argentina began exporting wheat, and as a major player in the world wheat market, some traders raised concerns over demand for U.S. wheat. Midweek saw a respite from price pressure with spillover support and technical buying after the most recent set back. Some support also was present as U.S. winter wheat conditions have been comparatively low and the world needs as many major producers as possible to contribute to all supplies. Weather concerns have been a major concern this year, and with frost and freezing expected in Argentina and the persistent dry conditions in the Plains, concerns over next years' crop helped boost the market. Also, news from the Russian government about raising their tariff on export in 2008 provided price support.
USDA export inspections were below expectations but still on pace for the year. Export inspections were at 23.1 million bushels, with expectations of 28 million to 33 million bushels. This shows that the trend of export sales falling off now have carried over to inspections. Primary destinations this week were Yemen and Iraq. Export sales were above expectations with 15.3 million bushels. This was above expectations of 9.2 million to 14.7 million bushels. This is welcome news as fears that exports may be dwindling have added pressure to the market.
Wheat markets continue to choppy around, but the overall trend remains lower. This is particularly true for old crop contracts, as the demand burden has eased from the highs seen in September. What we do expect is that the total "shortage" of wheat will begin to work its way through the pipeline, creating strong basis levels in many locations. New crop wheat looks as though its rally may just be beginning, as winter wheat acres have gotten off to a poor start and focus has not yet shifted to attracting acres for 2008. Make no doubt about it, though. We will need additional hard red spring wheat acres in the next few years, especially when one considers that world use of wheat has exceeded production in seven of the past eight years. Grain supplies in general (not just wheat) remain explosive, and with funds heavily involved, it's difficult to say what the upside potential may be.
Corn markets finished lower on the week, pushed by corrections in crude oil and metals as well as a lack of fresh news. Harvest now is finished in all except the most northern reaches of the Corn Belt -- and ahead of schedule to boot. Informa Economics did release its private acreage estimates for 2008 Nov. 13, and that provided additional pressure as it shows corn acres remaining high as the expense of soybeans. Mathematically, this is not a trend that can remain in place, as corn carry-outs are high and soybeans in danger of running very low. Additionally, outside markets such as crude oil and metals took the week to correct from last week's run higher, leaving a void where previous support had been. It is not typical of grains to be so reactive to outside pressures, but with inflationary forces so completely present in the marketplace, it is hard to avoid. Technically, the loss is disappointing, but we remain at the very top of a long-standing trading range.
USDA released its weekly crop progress reports for the week ending Nov. 11. The results were delayed a day because of the holiday, but showed harvest at 94 percent complete, well ahead of the average of 89 percent of this time of year. Weather forecasts continue to be cooperative, and we believe everything will be finished up ahead of Thanksgiving. Weather forecasts are calling for heavy rains in the central Corn Belt, but we do not look any delays.
Export numbers for corn continue to be very impressive, as we see not only shipments but also weekly sales numbers remaining above the pace needed to meet USDA projections. For the week ending Nov. 8, USDA is reporting shipments of 59.4 million bushels with sales of 53.7 million bushels. This is well ahead of trade expectations for 49 million to 57 million bushels. Pro Ag expects this trend to continue with the U.S. dollar remaining of relatively low value.
Pro Ag does not look for corn to be a leader of the grain markets like we saw last fall and winter. Fundamentally, we are in a different situation with carry-out estimates much higher and an adequate amount of production shifted in 2007. However, export interest and high crude values easily could work down existing supplies. Traders will be closely watching monthly supply and demand numbers for hints of increased ethanol estimates as well as foreign demand. Additionally, supplies are just enough to be comfortable, but not enough that markets will be comfortable sending more than 3 million more acres or so into soybeans. Balance of grain supplies in the U.S. remain precarious, and for that reason, we look for corn to follow soybeans higher, with prices for December 2008 possibly topping December 2007 as it traded last winter.
Soybeans rallied again about 25 cents to new recent highs, bucking the trend lower in the other grains as reports of lower expected acreage continue to come out of U.S. 2008 acreage estimates. Informa dropped its projected acreage estimate by more than 3 million acres, switching most of those acres back to corn based on current price relationships. Of course, it is still long before U.S. farmers will make any decisions about 2008 acreages, but with an extended fall allowing more fieldwork and fertilization than normal, it could affect final acreage somewhat. It appears that the market thinks soybeans will be the crop short on acreage next year and, thus, the reason it is so strong relative to the other grains.
South American weather remains decent, although the northeast part of Brazil remains dry in spite of extended forecasts, which have called for improving moisture for the past few weeks. That extended forecast never seems to materialize, though, and it is starting to worry South American producers. It also appears that Argentina suffered a rare freeze in some winter wheat areas during the week, meaning some additional losses of food crops.
Outside markets had dominated trade until midweek, with some huge price changes in the crude oil and metals, first trading sharply lower and then rallying late in the week. While there was lots of price movement during the week, prices finished with only small price changes on a weekly basis. But we had $5-plus swings in the market in just a few days, giving us all the volatility we'd want in this already large market.
USDA weekly export inspections were good at 24.9 million bushels, slowly starting to climb after a relatively slow start to the year. Typically, most exports are sold in the first half of the year, but this year we got off to a slower than normal start. Picking up the pace now might lead to us still meeting USDA current projections. Export sales were outstanding at 47.6 million bushels, well above expectations and a new marketing-year high. China bought nearly 1 million metric tons themselves, accounting for almost three-fourths of the total. Rumors are that China wants to build a reserve of 5 million metric tons of soybeans or larger, but it's uncertain if those rumors are fueling these large purchases or just the desire to secure soybeans.
Overall, soybeans appear to be the strongest grain in the market, leading the grains higher and making new highs in almost all contract months. No question, the market feels we need to bid the price of soybeans up to attract more acres in both South America and the United States in the coming six months. It already might be too late to influence South American plantings, but there still is time to attract acres in the U.S.
Barley prices have remained strong with feed barley bids remaining in the $4 to $5.90 range with the most popular bids falling between $4.50 and $4.70. New crop malting barley contracts have been more varied this year because of a new formula that is being used to calculate the price. This method has resulted in the bids to change on a daily basis as it now is based on an equation that takes into consideration the price of wheat and corn. Producers who are looking at raising malt barley for the 2008 growing season should consider signing one of these contracts soon. Wheat prices have come under extreme pressure the past few months, and once March rolls around and the potential of the U.S. and EU wheat crop is known, it will be hard for wheat to hold strength (considering planted acreage). USDA estimated last week's barley export shipments at 1.4 million bushels, which brings the year-to-date total shipments for barley at 16.9 million bushels compared with last year's pace of 6.3 million bushels. Very small sales were reported for barley with the main destinations Japan and Mexico.
The USDA Export Inspections report showed last week's durum shipments at 808,000 bushels. The Nov. 15 export sales report estimated the weeks export sales for durum at 1.1 million bushels, which brings the year-to-date total sales for durum to 33.3 million bushels, compared with 19.3 million bushels last year at this time. As has been the case in wheat, durum sales have been robust because of production concerns in almost all of the major durum raising countries in the World. Durum prices have fallen off of their $18-plus high to now be between $12 to $16 (most bids are in the $15 to $15.50 area). New crop bids still are a disappointing $7. At half the price of old crop bids and prices that are almost equal to wheat bids, producers will not be as likely to want to raise durum.
Minor oilseed prices rallied higher again this week. Support continues to come from tight oilseed supplies and increasing vegetable oil prices. Outside markets also have been increasingly influence, particularly since crude oil markets are flirting with the $100 a barrel mark. Crude has fallen slightly and will not make the $100 level, but traders are looking for that level to be tested next week. Ending world stocks of oilseeds continue to shrink, and that will provide strong impetus to buy acres this winter. Traders are concerned that canola acreage in the US and Canada will slip dramatically because of the price increase and attention going toward wheat or barley. Sunflower acres have the same concern. With the increase in vegetable oil demand both canola and sunflower acreage needs to increase, not decrease, and that is just to secure enough product to make current demand. Flax prices also remain strong (now $13.25 to $13.50), but we caution that this year's low acres and poor production leave a tremendous amount of upside potential.