After three days of sideways trading, soybeans are back making new highs. On Nov. 17, January soybean futures made a new contract high of $11.721⁄4, up 17 cents.
It is not really fair to say the soybean rally returns, because a look at the chart shows steady gains for three months. On Aug. 10, January soybean futures made a low of $8.893⁄4. The Nov. 17 high had us nearly three dollars higher in three months.
There are fundamental and psychological reasons for the gains. Recently, the psychological and fundamental reason has been good news in the war on COVID-19. Two successive announcements about the status of vaccines have been good for the market, and a healthy populace leads to a healthy economy. A healthy economy would lead us to a return of normal consumption and to continued exports.
The strictly fundamental reasons for help in the markets is that we are still seeing some reaction to the recent U.S. Department of Agriculture reports that lowered soybean and corn yields.
In addition, South America remains dry, with delayed planting giving us a longer export window. Remember, the world buys beans from South America after the end of January, except for this year when their harvest will be delayed a couple weeks. Add to that the reality of exports to China that are still not in the USDA report, and prices have reason to remain positive.
The net result of the USDA numbers was a carryout of 190 million bushels at the end of August 2021. This comes from a bean yield reduced by 1.2 bpa and from steady exports and crush. In fact, some in the industry expect an export rise of as much as 100 million bushels, so this carryout number may be way too high.
Since “pipeline” supply is somewhere from 150 to 200 million bushels, we are now officially tight in supply. Pipeline supply is the amount left in each bin, processing tank and conveyor when the crop is officially used up. There is no such thing as zero supply, in theory.
This is the last week we will be talking about December corn futures, as they go into delivery and we will be using March futures as the nearby for cash hedging. Corn futures actually had the high a few days ago, with December futures at $4.28 Nov. 11. We quickly broke 15 cents, but are now positive for the last two days. On Nov. 17, we were trading $4.18, up two and a quarter cents after a gain of almost 6 cents Nov. 16.
The case for higher corn prices is a little more cloudy than that for the beans. Corn also was affected by the USDA reports and by COVID news. Fundamentally, USDA lowered the yield estimate by 2.6 bpa, to 175.8. The trade was expecting 177.7 bpa.
In addition, contrary to normal policy, USDA raised the estimate of corn exports to China from 7 MMT (million metric tonnes) to 13 MMT. They have normally taken the position that they will not assume exports until they have paperwork issued for the loadings, but the difference between what the trade expects and what USDA is officially expecting is getting large.
The trade expects us to send 13 MMT of corn to China, but there are some who think 17 to 30 MMT is possible. This would mean that corn prices are not nearly high enough, as those larger exports are not in the market. Corn prices were also subject to COVID news, with the corn maybe more-directly affected by the disease.
As we limit travel and economic activity, we slow down the use of gasoline, which is closely related to the demand for ethanol, which is a corn product. The contract high made in corn was a direct result of the Pfizer vaccine announcement.
It needs to be mentioned again that soybean prices are now high, but corn is not really high. There are reasons to believe both can continue to be firm.
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