By Jon Scheve, Superior Feed Ingredients, LLC
With beans trading above $11, many in the trade are wondering where futures are headed next. In the last 9 years that beans managed to hit $11 in a marketing year, prices went on to quickly trade above $12. Technical signals and fundamentals both are suggesting it is a real possibility. The following summarizes some big factors impacting bean prices right now.
Brazil imported U.S. beans
When the world’s largest bean producing country buys product from their chief competitor, it raises heads….and prices.
Many U.S. farmers were selling beans through harvest
On Oct. 6 corn was only $3.80 but beans were trading $10.50. This meant the market was encouraging farmers to sell beans off the combine and store corn during harvest. Plus, grain traders throughout the Midwest tell me that storage piles at ethanol plants are limited and many bean processors reported extremely long lines during harvest. This suggests that many farmers took advantage of the rally in bean prices and sold a large portion of their crop.
How much have farmers sold?
Recently a Brazilian advisory group stated that Brazil’s farmers are already 55% sold of the bean crop being planted right now. Typically, it’s closer to 30% at this point.
In the United States some grain traders are saying farmers are 60% to 80% sold on the crop that was just harvested. So, if the market continues to rally, and the two largest bean producing countries have large chunks of production sold there might not be many beans left to sell. Those that do have beans left in the bin may only want to sell their remaining beans in the teens.
The basis market on beans has been steadily increasing during this recent futures rally. It seems likely that this trend could continue. Here a couple of potential factors:
• Exports and elevators
Elevators are selling beans as fast as they are buying them. There are several reasons for this There is strong export demand has produced very good margins for shipping the grain out quickly. The carry in the bean futures tells the elevator to move them right now. As a result, basis values across the country are the strongest they have been in nearly 5 years.
Soybean meal demand is strong right now
Processors are making good margins grinding beans as fast as they can. Additionally, there are reports most processors have only covered their bean needs through early January. If strong meal demand continues, processors may be competing against exporters for supply, and by late winter, they may have difficulty sourcing beans if the farmers is as far along on selling beans as some have suggested. This could keep basis values strong the balance of the year.
The bean market looks very strong right now. While logistics, trade relations, currency issues and South American weather could derail a bean rally eventually, higher prices in the short term seem more likely.
Please email firstname.lastname@example.org 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.
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