Will beans hit $10?

By Jon Scheve, Superior Feed Ingredients, LLC

This week a bean trader told me, “it’s not a matter of if beans hit $10 but when.” With a little 2019 futures position left to sell, and all of my 2020 bean crop unsold, this was music to my ears.  However, it brings back memories from 14 months ago, when the potential for $5 corn seemed like only a matter of time.

How realistic are $10 beans?

There are so many factors affecting prices, that it’s impossible to accurately predict when the high will occur.  Instead, I prefer to make a list of why prices could go either direction, and then evaluate the likelihood of each scenario happening.  This helps me when making grain marketing decisions for my farm.

Reasons to be bullish are:

Inflation

The Fed said keeping the economy running and bringing unemployment levels down were a higher priority than keeping inflation in check right now.  When inflation threatens, funds tend to gravitate to commodities. Recent metal market rallies may be an indicator of potential in the grain markets going forward.

Weather

Half of the bean belt had minimal rainfall over the last 2 weeks, a crucial time for berry fill and pod retention.  Yields could decrease by over 10% from the USDA record yield estimate in early August to trendline levels or maybe even lower.

Brazil import taxes

The Brazilian government eliminated import taxes on several commodities, including soybeans. This means other South American countries could export their remaining beans to markets in Brazil.  While it probably doesn’t make sense logistically for the US beans to trade into Brazil, it could be possible.

Exports

South America produces 60% of the world’s beans, and the U.S. produces 30%. With Brazil nearly out of beans, and unable to produce any for another 5 months, the U.S. becomes nearly the only supply available for export through late January.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Price potential

Between late 2007 and mid-2018, beans were below $9.50 only 10% of the time.  Since the trade war started in mid-2018, beans have been below $9.50 most of the time.  However, recent comments from government officials and continued Chinese purchases indicate Phase 1 of the trade deal has the potential to still happen.  Friday’s bean close was back to the highest levels seen since January 2020.

La Niña

There is currently a 50% chance La Niña could form this winter.  That weather event tends to negatively impact the South American growing season and could reduce yields in the Southern Hemisphere.

Dollar value

The dollar has weakened compared to other world currencies, which could make our products easier to buy and help increase our exports.

$10 profit level

Generally, farmers need $10 futures with average yields to turn a profit across most of the country.  This means many may wait for better prices before selling.

Reasons to be bearish are:

Yield

While there may be a yield decline from the current 54-bushel national yield estimate, it would be unlikely to decline 10% to below 49 bushels per acre in one month.  Even at 51, it would be a sizable crop and leave us with an ample carryout.

Phase 1 Trade Deal

There continues to be a lot of uncertainty surrounding trade deal goals and timing. There are many in the trade who suggest that it’s not logistically possible for China to buy enough grain to meet the goals set at the beginning of this year.

Weather

Forecasts are unpredictable.  It wouldn’t take much rain and cooler weather to keep yields from dropping and taking the market lower.

Exports

With 50% of US beans exported out of this country, there is a lot of risk riding on international cooperation.  Even when exports look promising, political squabbling and last-minute cancellations can always happen. 

Harvest

Harvest will begin in less than 4 weeks in the northern belt.  With an expected sizable corn crop mostly unpriced, beans may need to find a home.  If prices are even close to breakeven its possible farmers will sell the beans to generate cash and make room for storing their corn.

Brazilian REAL

While U.S. currency has dropped compared to other global currencies, it hasn’t dropped all that much in relation to the REAL.  The REAL really dropped in value versus the dollar last January and this took U.S. bean prices down more than $1 per bushel in the first 2 months of the year.  If the REAL continues to stay at current levels verses the U.S. Dollar, then upside potential in prices could be limited.

Higher prices

If prices rally, South American farmers will likely plant more beans, with this increased supply, lower prices would likely ensue.  Planting the South American crop starts as we begin to harvest our crop.

Historical perspective

In the last 13 years, the front month bean contract has been:

Final thoughts

I’m optimistic on bean prices.  If the U.S. produces a 49.3 national yield average, which is the average yield over the last 5 years, and exports return to just pre-trade war levels of 2 years ago, the carryout next summer could be 250 million bushels.  This would be 25% of last year’s levels and could make a price rally seem reasonable. Then, what if China honors the Phase 1 deal and/or South America has a dry growing season?  Just a few things go our way, and $11 beans could become a reality for U.S. farmers.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

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