After multiple failed attempts, soybeans have finally managed to push through the $12 level! The next target on the charts is $12.55. Strong demand and concerns about South American production continue to be the driver. Our marketing year starts in September, and we have already hit 90% of the export sales that USDA is estimating for the whole year! Now a few important caveats to that are that our sales are generally front loaded since we export the most from September through when the South American harvest starts in Feb and China can still cancel some purchases or roll them to new crop. But even with those caveats, that is still an impressive number. USDA has not made big adjustments to exports yet. They have kicked a lot of adjustments to the Jan report including US yield as well as South American yield. All this means there is still plenty of potential to get help from both supply and demand on the next report. Soybeans are a powder keg and it will only take a spark to get us another leg higher. Just as sure as we were sitting on too many beans a year ago, we now have a real threat of running out. That is how quickly things can change.
The market consolidating over the last few weeks and now pushing to new highs is very good for the technical indicators. It keeps the market from getting into overbought conditions. Not only are speculators buying, but also a lot of end users are trying to get coverage. So many beans were sold at harvest in the Midwest, there are not many natural sellers. We are also still getting the tailwind from an overall bullish sentiment toward commodities and real assets. Metals have seen a lot of strength too as the world economies try to chug higher led by Asia. Supply, demand, currencies, inflation risk, all the things that were going against us 6 months ago are now going in our favor.
The 2016 soybean high was 12.085. The next technical targets are way above the current levels now. China needs more beans, the US is crushing more beans, the US yield is going down, South American crops are under threat, there is a lot of concern about inflation, US dollar is getting weaker against almost all other currencies, there is a port strike in Argentina.
The list of bullish factors gets longer and longer. We know that all of that can change quickly. That is why we were scaling in sales up to this point. As long as you have a good portion of your costs covered, I advise sitting back and seeing what this market is going to do. The basis has jumped higher at all delivery points in the Southeast and I expect it to continue to strengthen. Be patient on new crop as well.
Corn has lagged the soybean rally but still has a lot of underlying positive fundamentals. Corn in China remains over $10 as they try to rebuild their herds. South America has no corn to offer and as late as the bean crop was planted, they are going to have less to offer than a normal year. Mexican peso is getting stronger. The only corn demand base that has not seen growth is ethanol, but we have seen enough increases elsewhere to offset that. If somehow ethanol were to start recovering that could take a lot more off the balance sheet. USDA is expected to reduce yield on the Jan report taking supply lower at the same time demand is increasing.
We have been diligently scaling in sales up to this point to cover costs. Similarly to beans, I think we should be patient now and give this market some room. Rail is running just slightly better but still leaving some big holes in service giving us great basis opportunities. Basis and board should both continue to appreciate. If you do not need to move anything, don’t.
Wheat has not been the shining star this week. Wheat rallied on rumors then announcement of russian export tax, but then fell apart when it was released it would not start until feb 15. Fear is that there will be a lot of wheat exported before then. We do not have as tight underlying fundamentals in wheat right now but it is still subject to the same bullish tailwinds of currencies and inflation fears. Also much like China on corn and beans, Russia is a big wild card on wheat. We never have as good of an idea about what is going on over there as we think we do.
If you are light on sales and the crop looks decent, I would still be getting some bushels hedged above $6 on wheat. We did not plant near the acres we intended to plant in the Southeast due to weather so basis should be a lot stronger than earlier projected for new crop. I would not be in a hurry to lock in basis, preferring to just get it hedged instead.
Cotton has been making a big splash this week along with beans. After USDA’s large surprise adjustment to the US crop adding to the strength, cotton also found many buyers on positive economic indicators out of China. After looking at burdensome carryout levels, we may be able to pull the balance sheet low enough for acres to matter next year after all. Inflation concerns also really add to cotton’s potential.
I would be working orders on old crop cotton just below $0.80 and be patient on new crop.