Time for a price rally is running out

By Doug Tenney, Leist Mercantile

Time is quickly running out for soybean prices to rally prior to harvest. Hints of hot, dry weather in August often have the ability to rally soybean prices 50 to 70 cents in quick order. Prices for November soybeans continue to be broad ranged as they moved from $8.31 to $9.12 during April through July. Often factored into soybean prices has been the buying or lack of buying sprees from China. The Phase One trade deal reached earlier this year between the U.S. and China called for China to buy $36 billion of U.S. agricultural goods. Various publications have offered a plethora of opinions about the success of reaching that lofty level. China stated up-front and early on, it wants to buy U.S. agricultural goods only when it falls into their plan of necessary pricing of goods needed for import months into the future. In addition, their desire is to buy U.S. goods only when they are the cheapest source in the world at the time of purchase.

Continuing to grab headlines has been the political rumblings between the U.S. and China as tensions creep higher. Various reports indicate the latest event has tensions at all time highs. Those all time highs have been repeated multiple times in recent months. The latest event was the July U.S. closing of a Chinese consulate in Houston, Texas. China then announced their displeasure and vowed further ramifications would be forth-coming. While tensions may be at an all time high, they have not resulted in zero purchases of U.S. agricultural goods by China.

Late last month, China bought 1.937 million tons (76.2 million bushels) of U.S. corn. This purchase had been in the rumor mill for weeks. It ranks third in the top 10 of U.S. sales of corn to a foreign country. The largest was in January 1991 when Russia bought 3.7 million tons of U.S. corn. The second largest was also by Russia in October 1989. However, corn prices on that July day this year was boring and lackadaisical with December CBOT corn closing at $3.2675, up a half cent. This lack of price movement would suggest that the market is more concerned with supply than demand. Many analysts assume corn demand is too high with ethanol numbers expected to decline further in the months ahead.

As the summer advances, ideas of U.S. corn and soybean yields continue to climb higher. It has been known for weeks the best looking corn and soybeans in the U.S. continues to be in the western Corn Belt. This notion is further evidenced with the record high or near record high good and excellent totals for Iowa, Nebraska, and Minnesota. Total U.S. corn and soybean production will be increasing in coming months as those states often rank in the top five U.S. production states. The July 27 weekly Crop Progress Report detailed both the U.S. corn and soybean ratings at 72% good and excellent, both up from 69% the previous week. This was a surprise, putting corn and soybeans under pressure in the following days. Bear in mind, it is impossible to translate good and excellent totals into total production and per bushel U.S. yields.

The July 10 WASDE Report had the U.S. corn yield at 178.5 bushels per acre while the U.S. soybean yield was 49.8 bushels per acre. Both numbers are trend-line yields. Many are already expecting U.S. corn yields to reach 181 to 183 bushels per acre and even higher. Soybean yields could reach 51 bushels per acre or higher. Actual reports of harvested yields won’t be until September. The August report will use NASS estimates of expected production.

 

With the good planting progress seen this spring in many states, expect harvest to be early in many western Corn Belt states.

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