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Current New-Crop Prices Favor Soybeans & Sunflower

Monday, January 6, 2014
filed under: Marketing/Risk Management

There was no end to the general barrage of bearish market news during the month of December. All of this bearish news included:

• Revisions by Stats Canada to Canadian crop production that brought massive increases in the canola and wheat production forecasts.

• China has rejected some cargoes of corn that contained a GMO variety not yet approved by China’s government.

• Rumors that China would also be cancelling shipments of DDGs that contain the same GMO corn variety.

• Very good weather in Brazil and Argentina that continues to bring forecasts for record soybean production and record world soybean supplies.

• Fears that China will eventually cancel purchases of U.S. soybeans or defer them to the new crop position (fall 2014).

• Potential changes in the U.S. biofuels mandates.

All of this bearish news did push canola, corn and wheat futures to new contract lows. The soybean complex, however, resisted the bearish talk and maintained strength based on a record quantity of soybean export sales on the books to China. Actual shipments of these sales were also at record high levels through the middle of December, with 60 to as much as 90 million bushels of soybeans loaded each week. Those are big numbers.

Perhaps the most negative news of all was the December Stats Canada production estimates that brought large increases from their previous report in wheat and canola. Canada’s canola crop is projected to reach a record 18 million metric tons (MMT). That was up two MMTs from their previous estimate. The Stats Canada increase in the wheat production estimate was even more bearish. They raised the crop from 33 million metric tons in October to 37.5 MMT. Both of these production estimates blew away previous production records by very wide margins and added to the bearish mentality of the markets.

Old-crop soybean prices stayed very steady, while the canola market collapsed under the weight of the huge Canada production number that was coupled with big selling of canola by farmers in Canada.

Oil sunflower prices basically held steady. Canola prices moved from a steep premium to oil sunflower to a discount during the month of December. Oil sunflower prices held right at $20/cwt through November and December despite the wild gyrations in soybean and canola markets.

Another longer-term bearish factor is that the U.S. Environmental Protection Agency (EPA) has announced plans to reduce the mandate for biodiesel to a level far below what the industry expected. A smaller biodiesel mandate will likely mean lower vegetable oil consumption. That is not a good thing.

The next series of USDA reports that will impact prices will be the January final U.S. crop production estimates and quarterly stocks numbers. Analysts are expecting slight increases in corn and oilseed production from the November report. That could be the last round of bearish news, if it happens.

South American weather and potential soybean production will then dominate the markets through the balance of January and February and into early March. The market continues to forecast a record crop in Brazil and a big crop in Argentina. Weather has been conducive to generally good planting conditions so far. It did turn hot and dry in Argentina the middle of December; but at that point, extended weather forecasts did not project those conditions to be a long-term threat.

It will take weather issues in Brazil or Argentina over the next two to three months to create any appreciable rally in these markets. World supplies for oilseeds are building. Deciding what to plant and when to sell it in 2014 will be a challenge. It is interesting to note that even though most analysts expect a sharp increase in soybean acres in the U.S. in 2014, soybeans and sunflower are about the only crops today that show a profit in 2014, based on current new-crop prices. That strongly suggests that if you are going to plant oilseeds in 2014 you should consider selling part of your anticipated production earlier rather than later.

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